Boliden AB

STO:BOL

Earnings Call Transcript 2018-Q4

[Olof Grenmark, Director Investor Relations]

Ladies and gentlemen, I'd like to welcome you to Boliden's Q4 and Full Year 2018 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; followed by our CFO, Håkan Gabrielsson. Once again, it's a pleasure for us to welcome you. Mikael Staffas, the stage is yours.

[Mikael Staffas, President & CEO]

Thank you, Olof, and welcome, everybody, both here in the room and you who are attending over the Internet. And I would also like to point out that we will also touch upon the R&R updates that we have had -- released this morning as we go through this presentation.You've all seen the numbers coming out, and you see the numbers that we're presenting for the fourth quarter. This is going very quickly. We've had a stable production in general, and we received almost exactly SEK 2 billion EBIT, excluding profit inventory revaluation in the quarter. Metal prices have, during the fall, as you most know, have been quite stable even though they are, of course, on a much lower level than they were a year back. We've had a good, stable production, especially I'm proud about the smelters. They had a good production during the quarter. I'll come back a little bit to that. On the cost side, yes, we're still seeing the inflation mainly in energy and chemicals that we talked about in previous quarters, although it's not so preeminent in this quarter as it has been previously. When you look at the full year, you can see this is a record year for us. We've had a record profit, which we're quite happy with even though it's only marginally better than last year. It's still on a very high level compared to historic levels. We've had also, throughout the year, very good production. And also, of course, we've been helped by the fact that smelters have had a year with relatively low maintenance shutdowns. Normally, they would have much bigger maintenance shutdowns, and we will see more of that as we saw in '17 and also be a bigger maintenance year in '19.We've had increased price in terms if you take '18 compared to '17. And also about the dividend that we've given out for the whole year, and there will be some discussions about it, I'm sure. We have adjusted our targets for how strong balance sheet we should have. We have historically not included the reclamation debt that we have on the balance sheet when we calculate how much we can dividend out when we have a too strong balance sheet. We have now included that. That gives maybe a slightly lower number than many of you had anticipated. We still feel very strongly about the numbers, totally, SEK 13 has separated out through a SEK 8.75 on a cash dividend and then redemption shares of SEK 4.25.Looking at the market, yes, we, as so many others, see somewhat slower growth in terms of the general economy. The prices and terms are lower than last year, but this is quite similar to what we've seen previous during the fall. Copper nickel demand grew, grew pretty substantially. It's growing pretty well, although the zinc demand is stable or actually declined a little bit compared to previous year. We also see an interest -- an increased interest in the precious metals, which is an interesting side effect. You'll see that also in the slide in the gold prices I will show in a few minutes. On the concentrate market, we're seeing also quite interesting as we're seeing an increase in zinc concentrate output, which means -- also means that we see very high spot TCs on zinc. This is a little bit of a new market situation, and this, of course, will play into the benchmark discussions that are ongoing right now for zinc TCs. We are personally or we, as a company, are not involved in these discussions, but of course, this will play out in those discussions as well.On the copper concentrate market, it's more a balanced situation. But also here, the spot TCs do remain above the contract level or the benchmark TCs, which is also sending a signal that maybe the TCs are on their way up again.Metal prices, as I said, are relatively stable. You can see that the copper prices, if you look at the last half year, has been on a stable level, so as zinc. Nickel, still a little bit low, but as you can see from the slide down there, the inventories of nickel that have historically been very high are coming down pretty fast, and we're still quite confident that nickel prices do have a possibility to grow going forward.As you can see then looking at the precious metal prices, you see that gold has taken up in the last quarter, which is good, and so has silver, whereas lead is performing very much similar to the zinc price as often. When you then compare the prices of the metals compared to where we are on the cost curve, you can see that copper prices and zinc prices still have relatively healthy margin compared to cash costs, whereas nickel is still hovering around the cash cost of the nickel mines, which is, of course, also an interesting situation. There are not many nickel products around the world because it's difficult to make money in nickel. But as I said, this situation might get better, and we feel that we're well positioned also in the nickel market.When you add all this up together, you can see that our market term, what you see in this slide here, is that it went down pretty sharply over the summer. That's old news. But since then, it's been relatively stable. And we're still on pretty good levels compared to historic levels with our weighted index at around 120 compared to some kind of average level around 100.If we move over to the mines and talk about that, we've had a good run in the mines as well. Of course, here, we are very much affected by the lower metal prices. So comparing to a year back, it's, of course, a very difficult comparison for us to make. But comparing to previous quarters, we're doing fine. On top of the fact that we're having lower metal prices, we're also forced -- affected by lower grades. This also no news to anybody. We've been mining above reserve grade for a long time, and we're going slightly down towards the reserve grades averages. And that's also seen here in the numbers.The throughput was relatively stable. Aitik was doing relatively good even though we've had some minor disturbances there as well, but also good situation. We've had slightly lower throughput in Garpenberg, Kevitsa and Tara. In the Kevitsa situation, it's due to the ore, more difficult grind of ore. In the other ones, I think it's more down to -- due to smaller instances that should not be recurring.For the full year, here, you can see that in Aitik, we are now kind of have -- we're having a situation with SEK 2.4 billion of profit, slightly up from the year before. It got very slightly down also considering that they have lower grades than they used to have the year before, but generally stable situation for most of our mines. And I will soon come back into the R&R update regarding the mines. On the production side, the copper production is down. This is lower grades in Kevitsa compared to last year that had very high grades. The zinc production is also down. There's more of a lower throughput in Garpenberg. Tara, also compared to last year, that was very good. Nickel production is very stable altogether.If you're going to the R&R statement, you can see that generally in the R&R statement, we're having a year where we're not quite adding 1 year to the mineral reserves after 1 year of mining. But we're still adding. We're still adding somewhere between half a year and 3/4 of a year. We're still confirming the long life-of-mine that we do have in our big mines in Aitik, Kevitsa and Garpenberg. Even though we have limited new additions, we do have some additions. The very positive news in this one is the Tara Deep development where we're having 5 million extra tonnes going from 13 million to a little more than 18 million tonnes. This is still, you should know, only drilled from surface as the underground drift that we're doing towards Tara Deep is actually slightly delayed, and we're not on target to start drilling from underground. But we're very happy what we've achieved from surface, and this is, we think, a good basis for going forward with the Tara Deep project, and we'll see what the next steps will be there.The negative news here is the developments in Kylylahti where we have not been able to find substantially more ore, even though we found a little bit and we've added about 0.5 year length to the Kylylahti mine. But it is now scheduled for closedown sometime in 2020.Just looking at the numbers, you can see that in Aitik, we have roughly unchanged reserves. The copper grade is going down from 0.23% to 0.22%. This is simply a mathematical consequence of the fact that we've been mining above reserve grade for so long. The remaining unreserved is then lower, and at some stage, it will come over the rounding error and come down one step, and this is what happened this year. In the Boliden Area, roughly unchanged reserves here. We have been able to add 1 year, so we still have about 7 years of official life or reserve life. Moving over to Garpenberg, roughly unchanged reserves as well. Here, we're also having roughly unchanged grades. We had 25 years reserve life, still a long planning horizon. In Kevitsa, we have a slight decrease at the mineral reserve. We have not been able to really replenish the year that we have mined. We also here have an adjustment, which I think is more of a rounding error in nickel from 0.23% to 0.22% as well, which is also due to the fact that we've been mining above reserve average, and that's the math that works out over time. We still have 13 years of life, and this is calculated on the increased production that we have in our plans going up to 9.5 million tonnes.In Kylylahti, as I said in the beginning, we do not have any major breakthrough. We are, to that extent, disappointed in the results. We do have 6 month extra, which gives us roughly 2-year reserve life still in Kylylahti. But all in all, Kylylahti is heading for a closing in around 2 years from now.In Tara, roughly unchanged reserves. So we also have been able to in the old mine to replenish the production that we've done during the year. And then we have an increase in inferred reserve -- inferred resources, I should say, from Tara Deep going from about 13 million to about 18 million tonnes. Once again, Tara, also about 7-year lifespan with the reserves in place.Moving over to the smelters, we had a good production with stable production in the smelters. The TCs are slightly lower and so on, but it's met by the currencies. So it's a relatively stable prices and terms. We had no maintenance shutdown in the quarter. That, of course, helps us quite a lot also comparing to previous years.For the full year, once again, you can see here that we have 1 unit standing out, which is Harjavalta. Harjavalta has had a very good year. I think we've alluded to that in different presentations during the year. Harjavalta has been in a position both from strong production throughout the year, enjoying good nickel terms in terms of the TCs for the nickel that was being done. And also there are good timing effects in Harjavalta. After the investments that we've done there, they've been able to use old inventories with relatively good margins to process, which has been helping us to get to those results.The smelters production generally in Q4 was good. Copper is slightly up. This is more alluded. Rönnskär had a relatively good quarter. Zinc production is up. That is mainly due to that in the last year, although had a big maintenance shutdown that is now -- is not the case now. And the nickel production in Harjavalta has worked very good with the improved efficiencies and very stable production.With that, I will leave it over to you, Håkan, to talk about financials.

[Håkan Gabrielsson, Chief Financial Officer]

Thank you, Mikael. Good morning. Yes, as Mikael said, we presented a stable profit. EBIT, excluding process inventory, just over SEK 2 billion, which is very much in line with last quarter. What I would like to highlight on this slide is also the cash flow. In the quarter, we had SEK 1.7 billion free cash flow, which is roughly SEK 900 million up compared to last quarter. In that number, we have a fairly high CapEx number, but we had a better development in working capital and a lower pay tax.If we then look at it by segment, you can see that the improvement compared to Q3 is mainly in mines. Smelter showed a stable result, and then we have the other eliminations, which is internal profit that is still positive but not as positive as last quarter. And here, I should perhaps already highlight since this is -- the internal profit is entirely a matter of timing, and we've had 2 consecutive quarters with positive amounts. We are currently at fairly low inventory levels. So I think for those of you modeling the result, you should perhaps take highs for a negative swing in the next quarter.If we then dive into Q4 comparing to the same quarter last year, we have a negative deviation of SEK 900 million. So I think the main components are very evident from this. We're SEK 400 million down on prices, and we're SEK 500 million down on volumes. Prices and terms is mainly a reduction of metal prices. At this time last year, we were about $3,000 per tonne in zinc and we were at around 6.8, I believe, in copper. And this is on a lower level at this point in time, a bit compensated by a stronger dollar. The volume impact of 0.5 billion negative impact on volume is entirely grades. I don't think that is -- I think this is known to all of you. We were at 0.36 copper grades in Aitik last quarter, and we're currently at 0.27. So it's a fairly significant reduction. Still mining above reserve grade, but clearly a reduction.At the cost side, we've been talking about inflation for most of the quarters this year. This is a fairly moderate increase in Q4 to Q4, an increase of 1.6%, which is lower than the inflation we see around us. So that's a good thing. And then we have one item affecting comparability, which is the sale of an asset in -- a closed asset in -- on the other side of the Atlantic, the Premier Gold, which is described a bit more in the report.Comparing sequentially Q4 to Q3, it's very much a stable development. We are very similar in the result. Volume all taken together is stable, as Mikael indicated. We're slightly better on prices, and we have a cost increase of SEK 300 million. Out of that cost increase, roughly half is related to seasonal variations. We have higher salary costs during Q4 than the holiday period in Q3. And the remainder is, among other things, a bit more maintenance in mines and slightly higher exploration costs.Looking then at the full year development, we are slightly above last year in EBIT, excluding process inventory, and that is, in fact, the highest number that we have seen in Boliden so far, just above SEK 9 billion. We've also delivered the best net profit that we've seen in Boliden. And with the free cash flow, we're now down to a net debt to equity of 5%.Again, the EBIT bridge, we have a slight improvement compared to last year, but a very significant improvement in volumes. And this time, this is primarily in Smelters. Mikael talked about it briefly. We have clearly higher free metals in the smelting side. We have slightly less in maintenance, but the big part is free metals. And here, again, I'd like to highlight Harjavalta that has had a very good performance. In addition to delivering good production and high free metals, Harjavalta has been helped by good market conditions in nickel and by processing of intermediate stocks. But again, a good improvement in the smelting side.Prices, fairly small change year-on-year. Looking at cost, SEK 600 million is up. This is 4% and quite close to the inflation we have been talking about. We've seen roughly 4% on the external material that we purchased and a bit less on salaries, but this is mainly driven by inflation in chemicals and in energy as we've been talking about a couple of quarters.Moving over then to the cash flow. As you can see, a good number, SEK 1.7 billion, that's SEK 900 million up in spite of higher CapEx in this quarter. CapEx for the full year, as you saw, is very much in line with guiding. So this was -- this is in line with what we expected. But working capital development in this quarter is better than both comparisons. And also, as you might recall, we had a fairly big tax payment last quarter related to the Swedish tax returns, and it's clearly lower this quarter. But this is a good quarter for cash flow.And that leads up to a balance sheet that is on a very strong level. Net debt to equity, 5%; net debt, SEK 2 billion. Also, the financing side, we're happy with that part as well, 1.3% interest rates on average compared to debt financing. We have a net payment capacity of SEK 10 billion and a loan duration of 3.5 years. So we feel that we're in a good shape balance sheet-wise.So with that, Mikael, if you want to continue?

[Mikael Staffas, President & CEO]

Thank you, Håkan. Then I will come back to the dividend proposal. As you have seen and as I said before, we have proposed an ordinary dividend of SEK 8.75 and then a redemption share of SEK 4.25. The ordinary dividend is quite in line with our payout ratio of 1/3. The redemption shares is in line with the extra dividend that we -- with the extra distribution of cash, as I said to shareholders, that we do when we have a balance sheet that is stronger than needed. This has been before mentioned as 20% of debt to equity. We have refined or clarified this definition to also include the net reserves or reservations that we have for reclamation. We're quite happy of the targets that we've had that we had in play for almost 10 years. It worked very well, we don't want to change them at all. But when they were put in place 10 years ago, the net reclamation charge on the balance sheet was very, very low. It has grown over time. It's about SEK 1.7 billion today. And depending, of course, what happens, but if nothing else happens that we're mining straight out of the assets that we have, then this will increase over time. It increases by about SEK 100 million per year. We're doing this adjustment now to include also this debt into our definitions, and that gives us the room for the SEK 4.25 of redemption shares that we have. So the financial targets, we're very happy. The decision will, of course, be done on the AGM on May 3.Going forward, we are mainly reiterating all the guidance that we've done before. Aitik is on track for the 45 million tonnes in 2020, and the guidance is still for 0.25%, still over reserve grade, but not as much as it's been for the next 12 months. Garpenberg, we're still guiding the 4.0% for the zinc for the next 24 months, and the expansion to 3 million tonnes for 2020 is on track. In Kevitsa, the expansion to 9.5 million for 2021 or to get to achieve the pace during 2020 is still on track, nothing new there. Here, we're now guiding for going from slightly above reserve grades to actually slightly below reserve grades for 2019. The background is that we are about to deplete the pushback number 2, which has been very great with grades, and we're moving over to pushbacks number 3 and 4 and get more volume from there. And they are right now in lower-grade areas, and therefore, we will see lower grades during this year. And then over time, the reserve will be the reserve average.Planned maintenance stops for 2019 are up from 2018. 2018 was a low maintenance year. And if you add those up, you get around SEK 480 million or something like that, which is a high maintenance year in '19 -- 2019. And you've been -- was -- around for a long time, you know that we have this cycle. Typically, every second year is a big one -- every second year is a smaller one.And we're reiterating the CapEx guidance of close to SEK 8 billion compared to the SEK 6.6 billion that we ended up with in 2018. For those of you who want to learn more about this and the details, we will talk more about this at the Capital Market Day that we will have in March for giving some more flavor to the details of the different investments.So the conclusion, as we're standing here, is that we are still well positioned in the metal markets. We have stable prices and terms. We're working with the right metals. We have a high productivity. We've had it for a long time, still working on that. We're good at corporate responsibility. We have long life-of-mine that we have now extended for close to a year for most places. We are in stable jurisdictions, strong balance sheet, and we're working with our growth options that we are in place, and we're delivering these projects roughly on time.With that, I will just say, one second, about what I just said that we have a Capital Markets Day. I think there might be 1 or 2 seats left for those who have not yet decided to come. We're starting in Stockholm, and then we have a second day in Aitik. For more information, you can talk to Olof or Investor Relations.

[Olof Grenmark, Director Investor Relations]

Thank you, Mikael. Literally, we have maybe 1 or 2 seats left, so please sign up for the Capital Markets Day. Ladies and gentlemen, that opens up for our Q&A session, and we will start here in Stockholm. Gustaf?

[Gustaf Schwerin, Analyst]

Gustaf Schwerin from Pareto Securities. Two questions from my side. First of all, you mentioned some -- something like minor problems in Aitik during the quarter. Is that mainly related to the new crusher and the hiccups there? Or is it the normal seasonality pattern we normally see?

[Mikael Staffas, President & CEO]

Okay, thank you. We've had some teething problem with the new crusher, but the main part has been that we had one of the excavators that was down for quite some time that was, as I said, the major part of the hiccup.

[Gustaf Schwerin, Analyst]

But running at the moment.

[Mikael Staffas, President & CEO]

As I said, we're having some teething problem, but I wouldn't say there's anything major on there.

[Gustaf Schwerin, Analyst]

Fair enough. Secondly, on Tara, the grades in this quarter seem -- well, they were more stable quarter-on-quarter than we've seen maybe in the past year or so. Do you want to comment on anything on how we should look at this now going into 2019, especially Q1?

[Mikael Staffas, President & CEO]

Not really. No, there's not really any guidance above what we've said. You know, you should always count on the reserve average if we don't say anything else in terms of grades. And in terms of productions, yes, we're not quite satisfied with the level. So we're working on getting a level up a little bit, and we'll see how quickly we can get that in place.

[Olof Grenmark, Director Investor Relations]

Johannes?

[Johannes Grunselius, Research Analyst]

Yes, it's Johannes here, Handelsbanken. Two questions. The first one is on cost inflation. And you mentioned here, Håkan, that for the full year, you see 4% cost inflation. Can you elaborate a little bit on 2019 and beyond?

[Håkan Gabrielsson, Chief Financial Officer]

You're right. If we start with '18, you're right, we -- if you bring everything together, including salary expenses and so on, we're a bit over 3%. And excluding salaries, personnel expenses, we're at about 4% for the totality. Inflation Q4 to Q4 was slightly lower than that, and we're still early in the year. But we're not seeing the same pressure year-on-year right now that we saw from last year. So that's -- it's more normalizing.

[Johannes Grunselius, Research Analyst]

So less than 4% in other words?

[Håkan Gabrielsson, Chief Financial Officer]

And if you talk about so far '19 to so far '18, yes.

[Johannes Grunselius, Research Analyst]

And then my second question is on the CapEx. I appreciate your more detailed comments now on '19 that half of the SEK 8 billion is maintenance. But could you say anything just to get a feeling for how we should look into 2020 on the CapEx side? That would be very useful.

[Mikael Staffas, President & CEO]

Well, I will welcome you to the Capital Markets Day, but you might not to get too much of a flavor there either. We'll talk a little bit about the fact what we can do with the present, what will happen with the present portfolio that we have. But as always, we will not be too clear on guiding anything else because we are, of course, also interested in finding more projects.

[Johannes Grunselius, Research Analyst]

But what -- can you help us if we should think about 2020 being a lower CapEx year than 2019?

[Mikael Staffas, President & CEO]

As I said before, if we don't announce anything new, then 2020 will be lower than 2019, for sure.

[Olof Grenmark, Director Investor Relations]

Christian?

[Christian Kopfer]

It's Christian Kopfer from Nordea. A few questions from my side. Firstly on Aitik, you said you had some problems with the excavators. Still a little bit concern. I mean you've invested in SEK 1 billion in new crushers and still volumes are down year-over-year in Q4. I mean, I guess you want to have a return of 15% or so on that SEK 1 billion. So I mean, how is it working with the new crushers?

[Mikael Staffas, President & CEO]

Yes, I don't know if I can say more than what I've said before. In general, the new crushers are working well. We've had other issues around, and the excavator is one thing. Also, the trucking capacity is still not really adjusted to 45 million tonnes. As you know, we've ordered new trucks as well that are coming in during '19, which is part of the investment as well. And then regarding the crushers, yes, if you were to [indiscernible], yes, we have had some teething problem. We've had some issues with 1 of the 2 crushers that has not been having the kind of availability that we want it to have, but we're not too worried about that as well. I mean, that has not really been the bottleneck in the production.

[Christian Kopfer]

Okay. But all in all, if you include -- I mean, you're investing quite a lot in Aitik with the new trucks and crushers. What kind of returns are we talking about on those investments?

[Mikael Staffas, President & CEO]

That's always a very difficult part to say. I mean, the answer is what is Aitik 45 giving compared to what then Aitik 36 would have given and how much of the investments are ongoing or actually part of just sustaining the mine. And that we can have a long discussion about. But most of them, the investments, are actually about sustaining the mine. I mean, the bigger investment, which we don't even mention here is the whole investment that we're doing into the new extended tailings facilities, which is just for the run of mine that we're doing for the water treatment, connected to the run of mine, that we're doing for the new overflow control of the tailings dam, which is also connected to run of mine. So yes, there are big investments going to Aitik. The vast majority of investments are actually just to keep the operations going.

[Christian Kopfer]

Okay. Then on the cost side on Aitik, it seems like the costs have gone up year-over-year, cost per tonne. I know you have a lot of problems in 2017. I mean, you had a lot of stoppages and a lot of inefficiencies in the mine, and still costs are going up. I mean, how is that possible?

[Håkan Gabrielsson, Chief Financial Officer]

To begin with -- I mean, we've had some maintenance also this year and the inflation numbers that we just talked about, including energy, for example, which is -- and diesel, which is significant for Aitik. It is also hitting the Aitik P&L. I think we see the full impact. I mean we've been talking about a cost reduction in relation to Aitik 45, and I think it's a bit too early where we stand right now to really see that in the numbers. We still have some way to go until we're at the 45 level.

[Christian Kopfer]

So expect the costs to come down meaningfully per tonne ore during the -- already during in 2019, ore?

[Håkan Gabrielsson, Chief Financial Officer]

Well, for sure, it will be down 2020. 2019 is a transitional year.

[Mikael Staffas, President & CEO]

Just to avoid any questions, you talk about tonne of ore or tonne of metal?

[Christian Kopfer]

Tonne of ore.

[Mikael Staffas, President & CEO]

Yes, yes.

[Christian Kopfer]

Then on smelters looking at the volumes year-over-year and quarter-over-quarter, it's -- and I think Q4 of 2017 was quite bad in the smelters, and still you have a lot of process instability and such things. And then still volumes were not meaningfully up in the smelters. But you said you were happy with the smelters in Q4, but the volume -- you have the negative volume effect quarter-over-quarter. So what drove the negative volumes in the Smelters?

[Håkan Gabrielsson, Chief Financial Officer]

I think to begin with, one of the reason that we're happy with the smelting side is, if you recall, the slide comparing -- the full year compared to previous year. We've added -- we had a positive impact in the smelting side of roughly SEK 0.5 billion, which is due to more free metals related to recovery, processing intermediate stocks, et cetera. It's not always a matter of pushing more tonnes through the system. It's a matter of making more money out of the tonnes that we put to the system. And in that respect and especially in combination in Harjavalta with the nickel business model, yes, we are happy with the results. So I think that's the reason to the positive comments.

[Christian Kopfer]

But how is the process stability program going? Because you had a lot of thoughts on that in the previous Capital Markets Day also.

[Håkan Gabrielsson, Chief Financial Officer]

Yes. I think there is an improvement in -- I mean, the process issues we had -- we talked about in '17 was mainly related to the zinc smelters, and we have seen an improvement in both zinc smelters. So I think we're on the right track. If there is still potential, yes, I think there is. We hope to take another step in '19.

[Christian Kopfer]

Okay, I will not drag so much on the smelters then. But then finally on the dividends, I mean, what was the trick behind this change in how you measure net debt? Because I mean, it's not -- this has not happened so much on the reclamation cost. I mean, it's up SEK 200 million or so, so year-over-year.

[Mikael Staffas, President & CEO]

Well, at some stage, we've had discussions around the fact that we're having SEK 1.7 billion of debt that we're considering working capital debt. And if you come down to a closer point, if nothing else happened, that will rather be SEK 4 billion, and is it responsible to have a dividend policy where you will dividend out money that is actually needed for the reclamation. So we've had that discussion for a long time. At some stage, you will have to make a decision. And this year, we said it's the right time to include also reclamation debt. That is as much as debt as a pension debt, for example, and the pension debt has always been part of the debt calculation. Now we're not changing the accounting ways of this, but we are changing it for how we are willing to dividend money.

[Christian Kopfer]

Still seems quite conservative. I mean, to me, you could easily met consensus expectations on the dividends. I mean, you have very strong balance sheet. So...

[Mikael Staffas, President & CEO]

Well, you have to stick to your policy, and we have a policy that is, long term, going to be problematic unless you adjust it, and we have decided to adjust it.

[Olof Grenmark, Director Investor Relations]

I think we have one more question here in Stockholm. Ola Soedermark, please.

[Ola Soedermark, Equity Research Analyst]

It's Ola Soedermark, Kepler Cheuvreux. Just to follow up on Aitik and the production profile for current year. How should we view it quarter-over-quarter? The run rate now is roughly 40 million tonne.

[Mikael Staffas, President & CEO]

Yes, and that should, of course, in some way, ramp up a little bit, otherwise, we can't make 45 next year. But we're not going to be more detailed than that.

[Håkan Gabrielsson, Chief Financial Officer]

I think maybe you should say -- maybe we could comment a bit. I mean, you know this well, that cold winters typically makes Q1 a bit more difficult compared to the remaining quarters. But other than that, I don't think we should comment anymore on the exact quarterly split.

[Ola Soedermark, Equity Research Analyst]

If I guess, that roughly flat quarter-over-quarter reported in Q1 and then improve at 1 million tonne per quarter.

[Mikael Staffas, President & CEO]

That's a guess.

[Ola Soedermark, Equity Research Analyst]

Okay. And then one more on Tara Deep. You increased the ore body there from surface drilling and when -- but you also said that you are slightly behind the schedule on the counter-drift. When can we expect some more information about Tara Deep?

[Mikael Staffas, President & CEO]

I think that you will have to wait at least another year because we -- the drift is unfortunately behind schedule due to methane gas problems. So we are not quite there, and we will not start underground drilling for maybe another year. And then we will continue the surface drilling program, but we're not doing that as intensive as we would from underground just simply because of the costs. So we will see where we get. But of course, we also are quite enthused about the fact that we're approaching this 20 million that we set ourselves as kind of a threshold for starting to be able to motivate infrastructure into an area like Tara Deep, and we're heading there. So of course, in parallel with exploration, we are now starting our own discussions about feasibility, but it will take time to develop an asset like this. And as I said to many before, the kind of timing of a Tara Deep to come into production is much more of a 2026 type of timeline when we are coming to the end of the existing Tara mine.

[Olof Grenmark, Director Investor Relations]

Okay, operator, I think that opens up for questions from the web, please.

[Operator]

[Operator Instructions] And our first question comes from the line of Conor Rowley from Crédit Suisse.

[Conor Peter Rowley, Research Analyst]

Just 2 questions on CapEx. The first one, on the maintenance CapEx, can you talk a bit about the components of the maintenance shutdowns this year? You mentioned alternating big and small years. So is that the way we should think about it? So 200 million-ish impact next year and then back to 450 or so in 2021? And then just a second question on your actual CapEx. Is -- can you remind us what the FX component was for the increase this year? Or I guess to put it another way, what 2018 CapEx would have been based on the spot FX? Give us an idea of how much that might go away if the currency strengthens into 2020.

[Mikael Staffas, President & CEO]

On the first one, yes, you could assume that we will have roughly a second year bigger and second year lower. You've seen a low year in '18. You're seeing a high year in '19. And for lack of anything else, yes, that's a good way to look at it. Now regarding the FX component of the 6.1 million, if you would have had those -- that FX in the year before -- Håkan, do you have a good number?

[Håkan Gabrielsson, Chief Financial Officer]

It was about 300 million FX impact comparing to when the year started.

[Mikael Staffas, President & CEO]

So if you would have had the same conditions for '18 all the year on FX as we had on January 1, it would have been 5.8.

[Håkan Gabrielsson, Chief Financial Officer]

5.8, correct.

[Operator]

Our next question comes from the line of Alain Gabriel from Morgan Stanley.

[Alain Gabriel, Equity Analyst]

Two questions from my side. Firstly, on the copper TC/RC. So the benchmark is down year-on-year, but the spot is up. How should we think about your own realizations if nothing changes from now until year-end? And the second question is more bigger picture. If you look at the growth project that you have in the pipeline, 2020 should be your peak production year. And then post that, you will have grades, I mean, reversing lower at Aitik and then Kevitsa, which means your production profile will start declining post then. I appreciate you will be giving more details during the CMD, but can you give us a bit of a teaser about your thinking on the mining business growth post 2020?

[Mikael Staffas, President & CEO]

If I start with the second one, you're absolutely right that we have declining grades, and that will be part of our profile. And we're countering that with the increased production of ore. And regarding potential projects beyond 2020, I don't think we will talk anything about that in the Capital Markets Day because we don't have anything that we are ready to announce at this stage, and we will come back to you once we have something that we are ready to talk about. So I'll start with that one. And then the other question was on copper TC/RC. So you're saying that you're seeing the spot TC/RCs higher than benchmark right now in the market and then your question about realization. This realization is relatively slow for us because we're having, as you know, in the copper business, not only do we have a benchmark, which typically only changes once per year and it has to be a pretty big changes for it to go to a 6-month change. And secondly, we are also working partially with some of our suppliers on the block model, which means that we get an average for several years. So the spot levels only impact marginally. We're maybe buying 10% or so of our concentrates on spot terms.

[Operator]

Our next question comes from the line of Liam Fitzpatrick from Deutsche Bank.

[Liam Fitzpatrick, Head of European Metals and Mining]

Two questions. Firstly, just on the growth CapEx for 2019 of about SEK 3.5 billion to SEK 4 billion. Can you just remind us which of the key projects within that will largely be complete by the end of 2019 or early 2020? The truck fleet comes to mind, but interested if there's anything else outside of that. And then secondly, just in terms of Kevitsa grades. So there's a dip in 2019. Should we assume a rebound in 2020?

[Mikael Staffas, President & CEO]

If I start with the second one, unless you get anything unreserved thing for us, you should -- oops, I've got some strange sound here. You should calculate on getting the reserve average for 2020, which means then a slight rebound. Regarding the big growth projects, there are a couple ones which are a little bit tapering off. To some extent, the trucks are also coming into 2020, but we have some other ones of the ongoing projects related to the expansions of both Aitik and related expansion of Kevitsa that are coming more to an end, whereas others are flowing over. I think for more details, we will ask you to come to the Capital Market Day. Now it's all quiet.

[Operator]

The next question comes from Luke Nelson from JPMorgan.

[Luke Nelson, Research Analyst]

My first question is just on the dividends. Granted the 20% target is something adjusted for the reclamation liabilities. So on my work, I get to the pro forma gearing around that 20% level. But going back to last year, I think you are willing to take that to 24%. So the question is how should we be thinking about the payment going forward? Is it something that you'll be more closely aligned with that 20% gearing? Or is the lower level of payout on a pro forma basis something around expectations on grade, CapEx or macro outlook? And then secondly, just on working capital, I'm sure you mentioned a strong release. Just any indications on how you expect that to progress into Q1 and over 2019?

[Mikael Staffas, President & CEO]

If I can start with the first one, we heard you very poorly, but I think you said that last year, we were actually going slightly higher than 20% with the old gearing target ratio if you compare it to the balance sheet December 31. And this year, we're not really overdoing it where with the new way of measuring, we're maybe at 21%. And the answer is that the reason last year was that we saw already in February when we made the recommendation, we already saw that we had a very strong cash flow in Q1 that would also then eventually materialize because we were halfway through. And that was last year with very high prices and terms and a very good earnings pace. With the present prices and terms and with the lower grades and everything else, we don't really see that. So we have stuck to the balance sheet out of December 31. And that's that. And there was working capital, you can take it, Håkan.

[Håkan Gabrielsson, Chief Financial Officer]

Yes, working capital. As I mentioned, we had a good development of working capital in Q4 now. That means that inventory levels and working capital, in general, is lower than average. So I think you should expect a rebound in Q1. That's also our typical seasonal pattern that we're typically stronger in Q4 and a bit less so in Q1.

[Luke Nelson, Research Analyst]

Okay. And just one final follow-up, if I may. Just again on the CapEx question and just trying to get an idea of the potential bridge for 2020 relative to 2019. Can you give a bit more of granularity of how much of those projects around the trucks and the tailings, which I think is around SEK 2 billion? How much of that will fall into 2020? And then also any indications around project spends that aren't approved -- unapproved at the moment? So Tara Deep, Boliden Area, anything to do with cobalt, any sort of high-level views on how much capital might be required for those projects.

[Mikael Staffas, President & CEO]

I'm sorry, Luke, I think I'll have to disappoint you on those questions. Number one, regarding new projects, we will not announce anything until we're really there, and some of them we've spoken about with the Rävliden and Tara Deep, but they're still quite a far way out before they will come to any kind of meaningful investment levels. Regarding others, we don't have anything to say right now. And then regarding the profile of individual projects, I will say, repeat what I said before, we will not go into details here. We will save that for the Capital Markets Day.

[Operator]

Our next question comes from the line of Amos Fletcher from Barclays.

[Amos Charles Fletcher, Director]

I just wanted to ask a quick follow-up on the reclamation liability. You were saying that the liability will increase by SEK 100 million each year going forward. That suggests that you aren't paying out a meaningful amount at the moment. So my question is, firstly, when will you start paying out meaningful cash for reclamation? And secondly, what sort of numbers should we assume each year, say, over the next 5 years?

[Mikael Staffas, President & CEO]

Regarding meaningful payments of reclamation, they're pretty far out. The vast majority of our reclamation is linked to the Aitik mine, and the Aitik mine still has 25 years life-of-mine left. Even though there will be some reclamation activities done in parallel, that is not coming in the next few years. There are some. If you look into the balance sheet, I think we have about SEK 100 million or so of activities planned for the next 12 months if you look at what's short and what's long out of this reclamation debt. So yes, we're doing activities all the time. But as we said, this debt is likely to increase for the next foreseeable future. And as you know, the gross debt today is about SEK 4 billion. The net debt is about SEK 1.7 billion, which is in line with the Aitik. It's the biggest one, it has 25 years left and is then building up to the total.

[Amos Charles Fletcher, Director]

Okay. And then I've said...

[Håkan Gabrielsson, Chief Financial Officer]

Maybe I should also add that we are publishing the amount for the net reclamation liability in the report on Page 17. So you could track it quarter-by-quarter and see the trends. And as Mikael said, we have increased SEK 100 million compared to last year, and that's roughly the expectation going forward.

[Amos Charles Fletcher, Director]

Great. And then just one quick follow-up. I was going to ask, are you tempted to hedge any of your Swedish kronor exposure at current levels?

[Mikael Staffas, President & CEO]

No. Sorry, if I answered you so very quickly, but number one, we have a very clear thing that if we're going to hedge, if we're going to hedge, we will hedge both metal and currency exposure at the same time. Just hedging one leg will always get you into trouble. Secondly, will we do that? Now -- normally, not really. We don't feel that we -- we only do those kind of strategic hedges when we feel that the balance sheet is under very big constraint. And even though we have a very big investment year in '19, it is not to that kind of level that it's jeopardizing the integrity of the company, and therefore, we're unlikely to do strategic hedges because of the investments that we're doing right now.

[Operator]

And as there appear to be no further questions, I return the conference to you.

[Olof Grenmark, Director Investor Relations]

Okay. Well, ladies and gentlemen, thanks for joining us. That concludes our Q4 and full year 2018 presentation. And once again, if you haven't signed up for our Capital Markets Day, please do so. You are more than welcome. Thank you very much.