Anthony Simms – IR
Roland Junck – CEO
Bob Katsiouleris – SVP Marketing, Sourcing & Sales
Heinz Eigner – CFO
Graham Buttenshaw – SVP Mining
Michael Morley – SVP Metals Processing & Chief Development Officer
Russell Murphy – Chief Human Resources, Safety & Environment Officer
Philip Ngotho – ABN Amro
Alon Olsha – Macquarie
Wouter Vanderhaeghen – KBC Securities
Luc Pez – Exane BNP Paribas
Daniel Lian – Bank of America Merrill Lynch
Anna Mulholland – Deutsche Bank
Junior Cuigniez – Petercam
Tim Huff – RBC
Amit Pansari – Societe Generale
Jatinder Goel – Citi
Philip Ngotho – ABN Amro
Nyrstar N.V. (OTC:NYRSF) Q4 2013 Earnings Conference Call February 6, 2014 3:00 AM ET
Good day ladies and gentlemen and welcome to the Full Year Results 2013 Conference Call. (Operator Instructions). At this time I would now like to turn the conference over to Anthony Simms. Please go ahead sir.
Good morning and welcome to our full year 2013 results presentation. I’m Anthony Simms, the Interim Head of Investor Relations at Nyrstar. I’m also joined by our new Head of Investor Relations (indiscernible). In a moment Roland Junck, now CEO will make some opening remarks about our results following Roland will be Bob Katsiouleris, Senior Vice President Marketing, Sourcing & Sales giving us a market review following Bob, Heinz Eigner our Chief Financial Officer who will give a group financial results. Graham Buttenshaw, our Senior Vice President Mining will then give us update on the mining segment results followed by Michael Morley, Senior Vice President Metals Processing & Chief Development Officer giving us an update on the metals processing segment. Following that Russell Murphy will then give us an update on the safety, health and environment records for 2013 and then Roland Junck will give some closing remarks in terms of their outlook for 2014 and beyond. We will then follow with some Q&As.
With that Roland I would like to hand it out to you.
Yes thank you very much Anthony and good morning everybody. I would start with an overview of the year 2013 which has been many aspects of the company than which nevertheless we did some actual format and despite the challenges we had on our mining segment. So the first point I would like to make is the growth on the main EBITDA is at a level of 185 million which is down by 16% as a result of the certain number of, first of all it's significant improvement in 2013 in the metals processing results which comes out at the level of €129 million and which is up 10% as a result of certain number I first realized premiums which are higher secondly as already the recognition of the €45 million termination fee from Glencore and last but not least strong operational performance of the metal processing segment in the second half of 2013 the mining EBITDA has already indicated of 78 million is down 40%, the mining EBITDA has been adversely affected by lower prices so lower copper, silver and gold prices by one off operational challenges in the first half of 2013 and as you know by significant reduction in deliveries from Talvivaara.
But it is also consequence of significant cost savings which has been delivered at the level of 43 million in 2013 and we’re well on track with our target of 75 million cost reduction for the year 2014 and last but not least the gross EBITDA has been impacted by this strategic hedges of zinc, gold and silver which has partially offset challenging metal price environment.
The second point I want to make is the after tax of 195 million which has been impacted by impairments and the impairment reversals including the after tax. The impairment of 194 million after tax related to write-downs at the certain number of our mining operations. The reversal of 139 million after tax the total impairments of Balen and Port Pirie smelters due to improvements in the valuation driven by reductions in energy costs and a more favorable metal price outlook compared to the moment when those impairments have been done during the year 2008.
No impairment on Talvivaara zinc streaming agreement in 2013. Nyrstar as you know is being actively involved in Talvivaara's corporate reorganisation process.
Next point being our financial position is solely financial position with significant committed and strong liquidity head room. During the year 2013 we have been able to net debt down by 11% to a level of 670 million, I remember at the end of the first half 2013 the net debt was at 756 million. We also in terms of CapEx this have been able to reduce the CapEx by 19% to 200 million was at the low end of full year guidance. In terms of productions metal processing and mining segment production was mainly guidance metal processing production actually in the second half of 2013 a new half year record as a result metal production of approximately 188 kilo tons which is the top end of the full year guidance.
The mining segment having achieved full year guidance, all metals expected. And last but not least as I said already such a progress was delivering the strategic mission, the first one or just assumption to if that we have established the strong marketing sourcing and sales team which effectively support the strategy and one of the key actions have been to entered into a strategic marketing agreement with Noble Group as you I know it's a significant portion nevertheless of marketing rights for our metals in-house. With this I will pass over to Bob.
Good morning ladies and gentlemen. On slide 6 and I think I would like to open with some high level comments on zinc fundamentals. So I think 2013 was an interesting year, I think we have anticipating the changes on the supply side of the concentrate part of our business and we started seeing that in a very significant way in 2013 and of course that led up to the announcements on the Century mine as well.
So we have been anticipating a structural change on the supply side of zinc fundamentals for a while and I think it's pretty fair to say that that is currently happening and happening in a very pronounced way across the sector. It's interesting note that Nyrstar has anticipated that and has anticipated that both on the supply side and both of the production side with our ideas on technology and SSR. So in addition to the structural issues on the supply side I think what’s interesting to point out as well is that we’re starting to see evidence of improvements in demand and that demand increase actually is touching all three critical regions of our business which is what I’m trying to show on the slide I will talk a little bit about that here shortly in terms of Europe, the U.S. and China. And that demand is coming in areas that are let’s just say non-traditional in terms of what we have seen since 2006, predominantly clearly an increase in demand in the European building and construction sector which is very interesting simply put if you look at the amount of zinc that coats a billion sheet versus the amount of zinc that coats an automotive sheet, galvanized sheet, the difference is roughly 3 to 1, 300 grams for building sheet, 100 grams for an automotive sheet.
So with that if we look at Europe which is just the upper part of the slide we can see the construction sector coming back, we see the building sector coming back in terms of nominations in late 2013 and early 2014. Our building sector customers are clearly moving their business up significantly to someone in order of 20% to 30% and with that as well we still see I wouldn’t say an increase in automotive demand but a still stable demand for zinc in the European automotive sector.
So an interesting development there and that of course has translated to increased premiums across the European market and increased demand for European zinc in non-European regions, areas like North Africa, Middle-East, South Africa and other parts of the world which of course is an area of very much in line with not only our industrial strategy but our commercial strategy as well.
Look at the U.S. again interestingly enough we see relatively strong demand for commodity grade zinc but again I think demand towards a latter part of 2013 started showing signs of life of what we call continuous galvanizing grades or CGG and we’re starting to see quite a pickup there really led by the choice [ph] and the automakers but also again by the building sector. More valves [ph] more finishing’s, more fountains, more architectural goods and again evidence of demand that we have not seen since pre-crisis typically of 2006 or so. Look Detroit [ph] finished probably around 55 in terms of auto and truck. You see a number of roughly in-line with that for 2014 but a very strong finish by the auto makers in Q3 and Q4.
So finally looking at China again galv sheet continues to grow you see this slide the graph down below which continues to match with this sense 2009. I think the key thing to point out here is that yes there is quite a bit of the massive demand still in China driven by infrastructure and to some extent residential housing and building and so forth and so on. However the 25% to 30% of the second half of 2013 is galv sheet was exported so clearly we’re seeing more and more evidence of Chinese becoming much more aggressive in markets in Latin America and South America as well and note as well another key figure note is that China did import in 500 to 700 and 50,000 tons in zinc into the market. So there is concentrates going in the Chinese market and zinc metal going into the Chinese market as well and interesting to note that we participated in the Chinese market for the first time in 2013 successfully and we have plans to continue to do so in the future.
With that I will turn to the next slide which is slide 7, just a couple of comments on zinc price, clearly you can see the historical trend. I draw your attention to January 13, where you see the peak or slight peak in zinc price and that’s where we did execute the strategic hedges that Roland mentioned before for our zinc business. I think they were very successful. They were of course in terms of our strategy opportunistic in terms of the way we anticipate and see the market and we’re very happy to executed that at that time and you can see here on the graph towards the end we did see beginning probably mid-to-late November to December a rally [ph] in zinc prices and a rally [ph] in zinc premiums as well. So we have seen that come off here recently but we still believe that the fundamentals for zinc leading into ’14 and ’15 are robust both on the structural and on the demand side.
Turn your attention to slide 8, just a little bit on silver and gold. I think the gold story is well known and the softness in gold that’s hit the gold makers and producers and of course it has had an impact on our business a well and of course, the silver price which continues to remain somewhat depressed. I think it's our view that this problem a little bit more upside on silver than there is gold heading to 2014 but continues, we watch closely. Both metals do have a significant impact on our business on both sides of our business in terms of concentrates we purchase and the products that we sell.
Turn your attention to slide 9, just some closing comments and just to think about where we’re. We see zinc through 2014 probably in a very, very volatile environment. There are structural issues on the supply side, demand issues are very from region to region and in addition to that we also see beginning April 1st, the changes in the LME rose which are the 50 day rule. We don’t see that as a threat to demand but it is something that might prove to be a little bit of a dislocation as we head throughout the year.
In terms of zinc TCs and what we did in 2013 I think was favorable outcome and we did manage to in fact negotiate at 10% higher base TC than what we call the benchmark. We improved our deescalator in terms as well. We have started negotiations with the 24 TCs and are planning hopefully to wrap those up by mid to late March. I think in terms of our European zinc metal off-take agreement we have put an enormous amount of work about 6-7 months’ worth of effort into declining who will be our strategic partner that will replace Glencore in Europe. We’re very pleased to announce that that’s the Noble Group and we’re very pleased to have worked very, very closely with them in September, October, November and December to really put in not only world class supply chain system to deliver our metal and their metal but also I think a marketing approach and a marketing strategy in line with our view of observing different markets, different end uses and where it makes sense. So we’re very pleased to do that and have that in place and in addition that marketing agreement of course brings about roughly 180,000 tons of commodity grade products to Nyrstar and allowed us for the first time in nine years to reenter the marketplace and negotiate with strategic customers for the first time.
So a very exciting December, very exciting to be back in front of our customers as Nyrstar, as a leading producer of zinc and I think it's pretty fair to say because of the comments you heard back from the marketplace they are very happy to see us, very happy to do business directly with us as well and we’re very happy to be back in the market. So with that I will turn it over to Heinz for comments on good financial results.
Thank you Bob and good morning. Turning to page 11, what Roland already said is definitely true 2013 it was a challenging year for us, we seriously had some operational issues during the first half of 2013 and there was also confounded to this lower metal prices especially on precious metal prices. The second half however showed better operational performance leading to better financial operational during the second half of the year. Underlying EBITDA year-over-year decline was 36 million, a 16% decline in underlying EBITDA of 185 million. Metals processing the underlying EBITDA was 149 million which is 70% up year-over-year and form a better economic operational performance during the second half and also from the termination fees to the Glencore off take agreements during the first half of 2013.
As you would expect mining forward carry us to record (indiscernible) show sharp reduction in EBITDA contributions on the performance mainly driven metal prices by the operational issue of the year in the first half and also last but not least lower deliveries from Talvivaara.
Record volumes was 195 million which was significantly impacted by the impairments of the number of mining and service partially offset by reversals of impairment and even the metal sources in the business with impact in 2008. Moving on to page 12, some backlog and projects relative to Talvivaara. Talvivaara delivered last year 40,000 tons of zinc and concentrates to the lowest levels since the agreement. Talvivaara, the EBITDA was 40,000 tons amounts to €7 million and equal to our benefits that we have experienced in 2013 from this agreement.
From that you can also take these scenario by the volumes for whatever reason for the entirely data [ph] year-over-year and its impact would be 7 million contribution. As you know Talvivaara is in reorganization at the moment, our agreement it means this agreement will be intact in organization commercial and that is why Talvivaara remain include. And as such the expectations to deliveries to continue and it's also important to remember the people that I ask is (indiscernible) and even Talvivaara deliveries is slow, we do not anticipate and real operation impact.
To preamp the potential questions later on the Q&A. We did not we have the developed year but if you would have asked to this the impact on assets would have been 177 million and by doing that or at least you would have done we should would have remained compiled to all of our financial covenant.
The streaming agreement was in perhaps because as of to-date it's basically impossible to determine what is the most likely scenario of Talvivaara organization process. It maybe be successful in that sense we want to receive the material it might run horribly well and more than you would not receive any materials from the plant, from Port Pirie [ph] any outsource to outcomes or something interchange and say okay this is now the right treatment therefore the streaming agreements remain unexpected in 2013.
Moving on to page 13, we provided an update on the cost reduction efforts under Project Lean [ph]. I’m very pleased with the focus operating cost year-over-year has reduced by 43 million with a strong initiative for most of the year at the mining segment where workforce has reduced in terms of employees and contracts [ph] of 1500 position. And we’re also focused year-on-year virtualization at the corporate and most certain management liaison and consolidated actions and that has benefited from reduced cost especially in the second half of the year.
As you know we extended this cost [ph] during the year the increase of targets from 50 million to 75 million also this extending metals processing in other region to 75 million by the end of this year.
Moving on to slide 14, that’s also there is regional [ph] results depending on what’s the yearly capacity of 200 million to 230 million of CapEx spend. As we experience the economic or macroeconomics during the year we took mostly on the capital expenditures and we came in really at the low end of our guidance historically 200 million which was quite significantly better year-over-year in 2012 we spend 248 million.
The expense [ph] between the two segments was pretty much instituted even with 97 million in mining including some gross stems for the production facility at the (indiscernible) mine and in metals processing expenses amounted to 6 million and 70 million in project very importantly the project ability for Port Pirie and also too significant project.
We earlier committed to continue to a disciplined approach on capital expenses in 2014, normal gross element we expect the year-over-year expense in ’14 and that’s all over in 2013. So further CapEx expense we anticipate to be some between €265 million to €335 million reduced in the Port Pirie transformation would be approved and will provide further updates during first quarter of this year.
Moving on to slide 15, we have done a very good job in working capital and you see that also in the generation of the business it's clearly one of the highlights of 2013 financials. H1 operations was 300 million and one significant contributor to that performance was reduction in inventory of 230 million as you see illustrated on the left hand side of the slide.
We achieved volume of inventory operational performance was quite considerably across the metals processing segment and is particularly at Port Pirie and result of optimization of the raw material loss between the mine and our smelters and in between the smelters as well. Naturally in-line the metal prices and especially precious metal prices also recognized some of that reduction due to lower metal prices.
Moving on to slide number 16, the next generation as we saw in the previous slide allowed an actual reduction year-over-year and also from the half year level by 86 million. We achieved a refinancing of the closest majority in December of last year and liquidity including the cash on balance sheet of €721 million. In light of our gross project [ph] the Board has decided yesterday to go forward to the AGM later this year, recommending to the shareholders not to pay a dividend for 2013 in light of the gross funds that we have and the returns that we expect from those projects.
With that I turn over to Graham.
Thank you Heinz and good morning everybody. The mining segment did not perform to our expectations in 2013 which was one of the principle drivers in restructuring the business in order to provide focus mining specific leadership to our operations. It's that of the leadership team including the replacement of a significant number of their GMs and local management began in the second half of 2013 and now is 90% completed.
However overall 2013 so the underlying EBITDA for the mining segment declined back to levels we previously recorded in 2011 which you can see from the lower graph on the slide, and with revenues and gross profits impacted by operational issues at some mines which I will reflect on later resulting in lower volumes produced coupled with fall in precious metal prices and high TCs.
So despite closely focusing on reduced operating cost and tightly controlling capital spending reducing those by €30 million and €32 million respectively as you can see again on the table on the left hand side. These initiatives were insufficient to hold the EBITDA decline to some 40% from 2012 levels.
Moving on to slide 19, in terms of production the segment production volumes were below the 2012 level due to various operational events most significant of which was two months suspension of mining at Campo Morado due to administrative issues with the license in the first half of the year. But despite this extended down time at Campo an unplanned event elsewhere at Mid-Tennessee potentially (indiscernible). Our unmined output was within 4% of the 2012 level as other mines ramped output notably East-Tennessee mine which recorded an 18% year-on-year increase and continued to expand and the combined Tennessee properties which increased 11% overall.
As noted previously Talvivaara deliveries have declined 50% year-over-year as they continue to experience their operational problems. The gold output was down again principally due to the Campo Morado suspension but also the decisions placed (indiscernible) on care and maintenance royalty is long term viability was assessed. We provide full year guidance overall was achieved all metals with exception to lead which is driven by lead focus on our smaller Peruvian mines (indiscernible) care and maintenance and focusing on more value creating copper that was available first.
Turning to cost on slide 20, as noted previously in a falling gross profit environment close focus was placed on cost management and CapEx spend. With the unit cost being cut by over 20% from levels of €61 a ton in early 2012 to $48 a ton by the end of last year. A reflection on the ongoing focus on project leads and close operational control.
These improved results in sales negatively impacted however by the Campo Morado and Langlois events as fixed cost continued to be incurred in those mines during periods of zero production. Similarly one off labor agreement payments reflecting long term collective agreements subsequent to negotiations at four of our mines were also included in those improved unit cost results implying to the underlying structure of the cost base improvement was achieved during 2013.
So overall the same is being set for strong production performance underpinned by structural unit operation cost improvement in 2014.
Kindly reflect on our mining strategic review in light 2013 we kicked off that mining strategic review but perhaps that is timing some much of a mixed [ph] at present. We recognize that before we can take truly strategic review on our current asset footprint and that subsequent integration into the metal processing transformation program the individual mining assets need to deliver their full potential to-date they have not done so. As the consequences first phase of the review and focus on maintaining a full value created potential of each of the existing mines from understanding the all volume and subsequent geological model through production maximization within its current infrastructure constraints it's not going to be capital consuming to cost optimization and disciplined capital management.
This work is being undertaken by experienced key subject matter experts that are being recruited in 2013 as part of our upscaling program and they form the very backbone of the mining team. They are working closely with the cloud management teams many of whom themselves have changed out through 2013 since we recognized the need to significantly upscale the business with seasoned professional mining business related.
Initial results from the first three reviews have shown very encouraging potential EBITDA uplift which will be reflected in 2014. Then only we have our assets on the past delivering full potential where we initiate the second most strategic phase of that review and this is planned to be implemented in the second half of 2014. So with that I will hand over to Michael with some more positive results from the metal processing sector.
Thanks Graham. As been mentioned earlier 2013 sort of 10% increase in EBITDA for the metals processing segment are largely driven by the recognition of 45 million high TC going forward but also higher premiums and as we’re seeing also strong operational performance in the second half. Gross profit was down year-on-year 5% impacted by stronger Euro against the U.S. dollar but look at the elements of gross profits. By product revenue was down higher volumes across ore metals is unfortunately offset by lower metals prices and also lower asset prices. Premiums are up year-on-year, free metal was stable year-on-year zinc production was relatively flat but lower zinc prices were somewhat offset by higher lead volumes. TCs are also relatively flat higher benchmark was somewhat offset by the consumption of the higher proportion of more complex materials outside of grade [ph] contracts.
Other was down year-over-year somewhat largely reflecting the recognition in 2012 of approximately 25 million from the recovery from sands at Port Pirie but also high strength we saw an increase in both exports of (indiscernible) markets and we also saw higher alloy volumes which also contributed to higher alloy cost. And underlying operating cost level we saw cost down year-on-year again it's been from the termination fee but also weakening Australian dollar and importantly as Heinz already highlighted the significant focus on OpEx particularly in the second half of the year for the segment which will continue into 2014. That will somewhat offset by higher R&D cost particularly in Europe.
And EBITDA level that translates to an EBITDA of 149 million for 2013 and with similar volumes year-on-year EBITDA is also up approximately 8%. CapEx again as Heinz has highlighted is down significantly which is very pleasing particularly given the number of plant shuts that were carried out during the quarter of the year.
Up on house [ph], in the left hand side of the slide the first half from the termination fee and you can see the significant improvement in the second half performing gained by an improved operational performance. Turning to slide 24, the zinc metal production for the full year sitting at the top end of full year guidance and again that’s despite of the number plant shops across four of our deep smelters. Again second half performance was significant and by year half yearly record the zinc production Port Pirie lead production was also up year-on-year and also period of production of all other metals was higher year-on-year so that’s copper, silver and gold and we also saw a significant increase in Indian production at OB [ph] in 2012 to 33 tons in 2014.
Turning to slide 25, as I have already mentioned on year-over-year reduction in operating cost both an absolute level and on a firsthand basis and on a half basis first half benefit from the termination fees the second half third improved cost performance driven by increased production levels, a lot of Australian dollar increased by a 1% cost through the production exercise which again we will continue into 2014.
Slide 26, just a short update on the Port Pirie development and the previously announced metals processing transformation. Firstly on the Port Pirie redevelopment we completed during the course of the year the feasibility study and we continue to work through the final feasibility study. Discussions with stakeholders particularly the Australian federal and Australian governments regarding the funding and support package are progressing very well. We expect at this stage as we previously announced an investment decision during the course of the third quarter of this year and at this moment we anticipate Q1, 2013 commissioning remain viable on the assumption that the project proceeds and on that basis construct will start during the course of 2014 through 2015.
Now the metals processing transformation which we have previously announced but as a reminder that compromise of portfolio of some 25 different projects none of which we anticipate having capital greater than €50 million and those projects are aimed at lifting constraints across our investor foot print and not only that to efficiently process a significantly broader range of raw materials and also increasing our capacity to produce valuable unpaid metals. The first of those projects was completed in the last quarter of 2013 and that was the acquisition of the ERAS Metal in Norway now referred to as Hoyanger.
Other projects continued as to plan. The ERAS acquisition last year as we mentioned when we first announced this was an acquisition of the fuming (indiscernible) will enable us to more efficiently process our own internal residues and capture further mining of metals which is the mining we don’t get paid as our residues are sold to third parties. We’re currently undertaking an upgrade with approximately €2 million which will take us approximately 6 to 9 months, again as we previously announced but ultimately that facility will have a capacity of up to 50,000 tons per annum and likely to be through the each product they will also have capacity to treat some of the historical (indiscernible).
We expect further investments across the metals processing transformation part line during 2014 of in the order of €15 million to €40 million and we will continue to closely monitor that during the course of the year and beyond 2014 whilst we will certainly prefer to accelerate these projects as quickly as possible we’re also capable of sequencing those projects substep each project can partly or largely sum subsequent projects that would simply mean that the period during which we would execute those projects would be extended and probably extend as until 2019 or there about.
Now I will hand over to Russell Murphy.
Good morning. In relation to Nyrstar safety, health and environment and focus in 2013 unfortunately despite a strong focus on safety across our operations it is disappointing to inform you that there were two fatalities in our operations in 2013 one in Campo Morado in Mexico and one in Peruvian [ph] in Peru.
This is very disappointing. However, overall we remained committed to our safety and environment performance across all the operations globally, if I look at our leg indicators if you look at our quarter incidence they have increased slightly from 8.2 to 9 that is not significant that is merely to increase focus on reporting as opposed to actual incidence of injury and in 2013 and 2014 there is a comprehensive safety review across the operations led by our specialist to ensure that our safety performance improves.
In relation to environment, the environment incidence reported incidence dropped dramatically by 7% from 2012 and we anticipate that will continue in 2013. On that I will hand back to Roland.
Thank you very much Russell. So for closing this presentation I’m reflecting on what has been achieved or what has not been achieved in 2013. It is clear that 2014 will be an important year for Nyrstar and our key priorities in 2014 are very clear. We’re first to provide visible leadership to safety and by remarkable performance to deliver planned increases in our mining production, to continue to actively work with other stakeholders in the case of total value [ph] to derive cost and capital basically across the globe. To achieve the key milestones for the mining strategies for key area development in order to develop sustainable share on value, to execute the plant commercials strategy which is clearly aligned with our integrated business and operating model and that will develop and capture in order to develop and to capture maximum of values and last but least to leverage our production [ph] capabilities of Nyrstar’s leadership group to deliver on commitments.
Lastly we remain convinced that our unique industrial footprint and ownership of raw materials in our mining production and commercial focus provide the unique opportunity to generate value to our shareholders. With that statement I would like to conclude. Thank my colleagues and we’re ready for your questions. Thank you very much.
(Operator Instructions). We will now take our first question from Philip Ngotho from ABN Amro. Please go ahead sir.
Philip Ngotho – ABN Amro
First of all on Talvivaara I understand that it's still early days and that’s you are probably limited in what you can commit but I’m also still wondering if you could share with us a bit of what the current status is and give us bit more information and specifically what opportunities you see or you might have to still support Talvivaara and for example can you also rule out that you have that you do any equity injection? And my second question is also on Talvivaara I’m also wondering if you can give us indication of how much time Talvivaara has to actually survive they communicate before that they had sufficient cash until somewhere in Q1, what is the current status of that? Thank you.
Talvivaara current status is yesterday the first meeting of the committee initiated by the administrator on the cost of reorganization and for that you can in their meeting you can, that is very value days of the process. There is a deadline for the administrator to communicate on the status of Talvivaara on March 28th and then the other deadline that is administrator and to stakeholders in involving the process of working towards is May 28th and the administrator have to bring forward his reorganization plan. And in terms of equity injection I think you’re pointing towards the shareholders of Talvivaara that you can rule out, that is not expected. We’re looking to fresh situation of Talvivaara at the moment that’s clearly not for me to comment on. Talvivaara is an independent company and I cannot share any insights that I might have on that.
Philip Ngotho – ABN Amro
Okay and just maybe on the I guess just it as an example there on the equity injection but I was just wondering if you maybe you are already thinking of other ways that you can support Talvivaara. Other things that you’re considering that you can share.
We still continue to work in a very constructive way not only with Talvivaara but on the other stakeholders and you probably know that the Finnish Government engaged in Talvivaara by being the largest shareholder and also the debt provider.
Philip Ngotho – ABN Amro
And then maybe just the one final question, on your capital expenditure guidance you include 75 million to 85 million for the Port Pirie redevelopment and that is in-line with in euros, that’s in line with what you communicated last year when you announced the Port Pirie redevelopment but at that time Australian dollar exchange rate was at complete different level than what it is today. So I’m actually wondering the fact that you’re still sticking to the guidance that you provided before, does it mean that you actually that there is a higher capital expenditure spend expected for the Port Pirie development in Australian dollars and why and what’s the reason for that?
Yeah on the Port Pirie redevelopment we will communicate in the moment and give the complete picture which we still expect to be during the first quarter of this year so is in the two months also. And yeah I should believe on that I’m not going into further detail because we will provide them once as we think is ready to be communicated.
Our next question is from Alon Olsha from Macquarie. Please go ahead.
Alon Olsha – Macquarie
I just have a three questions just firstly there was another working capital release in the second half of the year and I just wonder how sustainable is that? Should we expect some kind of reversal in the first half of this year? The second question just relates to your hedging program what is the plan for this year to having some press reports that you have actually already entered into hedge four about a 100,000 tons of zinc and concentrate. So could you comment on that and then finally on premiums, story broke yesterday that Mitsui settled premiums about with an increase of about 70% year-on-year, what proportion of that do you think you can capture in the metal that is not part of the Noble agreement and in the Noble agreement as well can you give us some color on a kind of premiums that you think you can achieve there? Thanks.
I will take the first two questions that you had, yes we have experienced a nice release of working capital of course we really worked on that very hard and you probably remember then in the past it's the working capital that’s there inflated and we needed to bring them down. So from that I would not expect that working capital levels which reversed to a higher level sometime during the course of 2014 what you obviously need to consider as I mentioned earlier it's part of the overall reduction to benefit from the metal prices, if precious metal prices was increased again that part we could not offset from that we would see an increase but I guess since there is generally better cash flow so I think that would be affordable if you want working capital increase.
That also gives you a bit of balance [ph] in terms of precious metal or overall metal price in take on the reduction of inventory yield 233 million estimated throughout the 1/3rd of that reduction comes from our precious and base metal prices.
Relative to the hedging there was a speculation especially yesterday in the market. I think concern they have entered into a structure. What we have done is for February and March we have sought forward zinc so why is that we’re allowing the price the forward price at the time when we did this and that drives some in between $216 and $218 and we did this for 17,000 to 20,000 for the two mine.
For the second quarter we entered into put options that gives us a slower volume around 17,000 to 20,000 per month at $250 per ton. It's purely for the second quarter down right protection, upside remain completely open and the total is $7 million.
And then I let Bob take your last question on the premium.
Look at couple of comments on premiums. I think firstly we have with clearly with our volumes which are outside of the Noble agreement have secured a portion of the premiums for 2014. I think at this point it's pretty fair to say that premium settlement represents a significant uplift to our business and is at this point higher than planned. Part of that is driven by really a understanding of the regional differences that are driving both zinc price and zinc premium which is really what our MSS [ph] team is focusing and it's pretty fair to say that we’re looked as part of that shipping to 11 different customers in four different countries just in Q1 alone. So that’s driving our success in premiums. I think also some of the settlements we have had for our Hobart off take and U.S. off takes are very much in line with and slightly higher than Mitsui’s settlement so we’re very pleased with that.
And in addition to that we’re still seeing increased demand for the CGG non-commodity part of our business which again is driving premiums on the commodity sides because at the end of the day a unit of zinc is a unit of zinc. So that’s going relatively well. On the Zamak and Die Cast Alloy part of our business I think significant increases have been secured for the half year really driven by demand globally notably an increase in demand in Western Europe and Southern Europe as well and to the extent that Noble is successful in area of zinc I think it's early to say, I mean exactly how successful they are but clearly they are leveraging their excellent position in other base metals to place the zinc that’s part of the off take agreement. So all in all I think a very good story on premiums. I think probably more pressure on the lead side than on the zinc side and I think also again probably some pressure on premiums beginning maybe April, May, June is part of the LME rule change.
We will take our next question from Wouter Vanderhaeghen of KBC Securities. Please go ahead.
Wouter Vanderhaeghen – KBC Securities
Couple of questions, first of Project Lean, you have realized 43 million in cost savings in 2013 my question is are you going faster than expected on cost savings or have you found et cetera, et cetera elements for cost savings? And then secondly on working capital you already commented. I was wondering if you could give us an idea about the net impact of the commodity off take agreement with Glencore which is now replaced by Nobel and own marketing. So just that element alone what was the net impact and have you see the full impact already at the end of December? Thank you.
Well it's Project Lean and the cost saving I can say that they are on track we’re not surprised with the outcome at the end of last year and we understand we expect we will reach to 75 million by the end of this year. Relative to working capital of the Noble agreement with comparison to Glencore there is some benefit but it is not a very significant benefit. There is some because it's important it has been negotiated but it's smarter what we entered into at the end of 2008 that is not really material.
Wouter Vanderhaeghen – KBC Securities
Yeah I was expecting it that it would be in slightly negative impact given that you’re taking part of these volumes on marketing so that was not a case if you take the mix of Noble plus on marketing versus Glencore before.
The European off take with Glencore came only to an end as of December 31 so volumes up to the end of last year. They are still falls to Glencore and parallel we received prepayments from Nobel during the fourth quarter for the deliveries during the first quarter of this year.
Wouter Vanderhaeghen – KBC Securities
And can you quantify that impact because that will reverse to some extent of course in first quarter?
No because (indiscernible) discontinue.
Our next question is from (indiscernible) of Morgan Stanley.
Just three very brief questions, first on the going back to the working capital, if and when the Port Pirie rebuilt were to proceed would that require significant divestments in working capital yes or no? And secondly on the duration of the debt lines, the credit lines apologies I should have read the whole statement but it was few too many pages to get ready before 8 o’clock. So can you tell us what the duration is of that commitment and how much and if it's in split in different branches? And finally Aussie dollar depreciation was mentioned as a contributor to the cost reductions. What was the impact of Aussie Dollar depreciation during the year?
We don’t expect any significant change in working capital requirements at Port Pirie post redevelopment, in fact we actually expect a moderate improvement in that position after the redevelopment.
Well relative to question I’m not entirely certain are you asking just about the main facility when that will mature? That would be if I recall correctly November 2016. And relative to your last question on the Australian dollar depreciation and the benefit for us I would need to look it up but it's on the order of magnitude €10 million to €15 million benefit from that.
Perfect and most of that is set on the second half I presume is that fair to assume?
As Australian dollar depreciated we realized the benefit.
Our next question is from Luc Pez of Exane BNP Paribas.
Luc Pez – Exane BNP Paribas
Few questions if I may first of all if you could come onto bit of what you would expect in terms of Q1 cash cost for the remaining division over the course of 2014 even only on credit details and you would split if any between H1 and H2 on that front? Secondly with regards to acid sulphuric developments what is the outlook you’ve in mind for the current year and lastly on redeployment CapEx when will you be in position to let’s say be clear on the exact timetable for the whole of what is need to be spend there. Thank you.
In terms of our mining Q1 cash cost you will know that within to reflect on them what we reflected on rather with the control of operating cost and you saw a significant fall from the early part of last year to the latter part of 2013 that trend will continue and in terms of U.S. dollars we’re seeing a potential fall of our operating cost per ton processed from mid-70s in 2013 to the upper 50s in 2014. There is a significant drive in reducing cost particularly have been very successful and continue to be so in Campo Morado and Langlois our biggest operating cost impacts come from our Canadian operations and there has been significant improvement in Langlois where we have seen which an operating cost down 25%. So rather than reflected on C1 cash cost certainly our operating cost is receiving significant focus and we will continue to trend down through 2014 not a particular change half on half it should be fairly stable throughout the entire through the year.
Yes just on the comment on acid prices for 2014 versus 2013, we see the sulphuric acid market still under pressure really driven by what’s happening in phosphoric acid, potash and phosphates so net-net if I looked at 13 versus 13 we are probably looking at on a European price equivalent of probably 25% to 30% drop in equivalent sulphuric acid prices having said looking at Q1 which probably represents the bottom of the cycle especially in relation to our metal sulphur prices [ph] there is growing evidence of improved demand in Q2 as capacity comes off and domestic demand improves. So Nyrstar what’s critical in terms of sulphuric acid is to make sure we continue to serve our European and local markets the way we have historically and of course there is excess acid and there are export opportunities we will continue to look at those but our domestic market comes first and foremost. So I think that’s how we see acid in 2014.
Firstly on the metals processing side as Heinz already alluded to, we expect to provide an update with respect to the Port Pirie redevelopment during Q1 as we’ve previously said. We continue to work through the feasibility study which involves many things and including ongoing scope challenges and ongoing CapEx challenges. Discussions with government continue to progress well the one thing perhaps I should stress is that off the funding package we previously announced there was a Nyrstar upfront if you like contribution of a AUD100 million and that does remain the case.
In terms of the metals processing transformation we have given 2014 yearly guidance of 15 million to 40 million I think you can expect that this pipeline in projects progressed through feasibility that we will continue to do so and then update that during the course of the year if there are any changes. As we have said when we announced the program we would certainly prefer to accelerate those projects as quickly as possible and we gave an outline of the CapEx profile between now and 2017 if that were the case. That said as I said earlier there is also another way for us to tackle that program of projects and as to sequencing then in a way such that really the projects can effectively fund subsequent projects and there is a sequence that we could fully that would rule if you like and that would have those projects being closed by the end of 2019 and as we have said before these are relatively small projects and all having extremely good returns and extremely good paybacks and if you take for example the recent acquisition of ERAS with the investments we would expect that they have a payback in a range of about 1.5 years.
Finally I should also just perhaps reiterate what Graham said on the mining side as well with respect to the mining strategic review and as Graham said we do not expect that to be ideally capital consumptive at all.
Our next question is from Daniel Lian of Bank of America.
Daniel Lian – Bank of America Merrill Lynch
I was just wondering on you’re the reversal impairments that you built on your metals processing division you mentioned a combination of lower cost in the better metal price outlook. I was just wondering what was the split between the lower cost and more favorable price outlook in terms of that reversal and are you able to disclose at what prices you’re now assuming in your impairment test? And then secondly in terms of the maintenance shutdowns you mentioned for 2014 can you give us an idea of whether most of those will fall in the first half or the second half?
On the first one relative to the reversal of the 2008 impairment, we have most of accounts that is in operating what is happening what this translates into metal price assumptions have been used in order to do that impairment. It is probably important to note that the environment relative to 2008 and as we call the Euro approaching and with Euros and what energy cost are today more than they are half of 2008 that is one of the strong drivers in addition to that we have had over the years recovery improvements at most of the smelters including Balen and last but not least Balen has restructured back in 2009-2009 and the last driver we have done in a strategic view in the course of 2013 and that gives us the answer whether there is going to be a sustainable future for the individuals smelting assets and as a result of the we then comes able to say it would actually be sustainable and not that we have been out to market traditionally [ph] from one year to the next.
Your second question regarding plant shuts, on the full year results we actually bite down each of the shuts individually by size also showing expected time duration and impact on the metals production. But as a broad comment the shuts are somewhat biased towards the second half of the year.
Daniel Lian – Bank of America Merrill Lynch
And if I could ask just one more question actually. Could you just update us on your plans as regards to the shares you currently hold in treasury?
On that one Daniel we continue to look for a long term investment, we certainly could have a dialogue on the execution of the strategy quite similar to what how it's possible, Glencore dialogue and that type of investment. We’re still looking at and yeah the process continues.
And we will take our next question from Anna Mulholland of Deutsche Bank.
Anna Mulholland – Deutsche Bank
I’ve got two quick mining questions, first is on your grade profile at Campo Morado. Can you just confirm sort of third quarter and fourth quarter performance and if you’re still looking for grades there on the zinc price go up to about 5.8 in the medium term and ten Middle-Tennessee could you just give us an update on the overall operating performance and into the back end of 2013 and you had a big drop in terms of metal in the first half and how is the performance of that going?
Sure first of all since the Campo Morado the grades are actually shown on the page 28 of the release which you will see fell from 6.4 in the first half to the 5.4 in the second half and that’s something that will continue at those lower levels throughout 2014. I recall reflecting in the last call we had on the change in our ore body extraction process. We have moved from the original G9 ore body to a mix of that ore body and new (indiscernible) ore body which has considerably lower grade and different metallurgical characteristics. So we anticipate the average grade for this year going forward to continue in the mid to upper 5% zinc. However we also do anticipate a marginal increase in the copper ore grade towards the 1.3% up from lower grades last year.
With respect to Middle-Tennessee there was an issue with its transport facilities that caused a reduction in output from that mine and I guess the thing that changed this year is we’re now starting to operate as a segment level rather than as an individual assets and by the latter part of the year we had transferred all these assets from both Campo Morado and from Langlois in order to increase the average capacity of that mine and in the fourth quarter we started to see return to the higher production levels that we anticipate continuing through to its 2014. So the fall off in production was driven by effectively in accident that occurred with one of main (indiscernible) assets but we offset that by transferring assets from elsewhere [ph].
Our next question is from Junior Cuigniez of Petercam. Please go ahead.
Junior Cuigniez – Petercam
Two questions from my side, it seemed that you reduced the expected output for zinc, silver and gold as compared to 2012 whether this is sign of slowing ramp up or just you being conservative on the outlook and the second one is on the hedges. It seems the hedges paid off well in 2013 predominantly in the smelting segment I would say. Could you remind us on what the costs were below the EBITDA line to look in your metal exposure? Thank you.
I would not like to come back to the guidance we have given for the year this year 2014 and for that I think we have been prudent in the guidance we have given.
Well let’s look at the cost that we had last year it was 9 million but unfortunately I cannot remember whether it was Euros or U.S. dollars, I believe it was $9 million.
Junior Cuigniez – Petercam
And there is below the EBITDA line I guess right?
Yes that’s correct.
Our next question is from Tim Huff of RBC.
Tim Huff – RBC
My question is on both hedging and working capital, it has been answered but thank you very much.
(Operator Instructions). We will now take our next question from Amit Pansari of Societe Generale.
Amit Pansari – Societe Generale
I’ve a question on gross profit other gross profit in the smelting segment, it has increased considerably over the last few years. Just want to know what are the key factors and do we consider this as a new level of other operating cost going forward for this segment? Thank you.
As I mentioned earlier when we went through the sides I think it's important to recognize that 2012 has been a significant positive item which was the €25 million benefited from recovery of additional silver sands units from Port Pirie which we have always had in 2011. That has not repaid itself and it won't repay itself into the future either. Then looking at the underlying drivers what we see an increase in flight cost year-over-year to the amount of up to around €10 million and that really is coming from two different factors one factor is as I mentioned earlier an increase in the amount of bulk exports of acid particularly to Europe into a decline in acid market and secondly and this is actually a positive story, an increase in the volume of alloys produced in this therefore the fact associated with that increase is strong.
Those increased volumes of alloys also contribute to higher alloy in cost year-on-year as well. They are the key drivers.
Amit Pansari – Societe Generale
Just as a follow-up I mean in terms of €25 million you speak was it not a part of byproduct earnings in 2012? I mean in terms of what you had shown earlier on the slides that €221 million from byproducts that did include 25 million on silver and so I just want to understand what I’m missing there?
The 25 million from the silver sands in 2012 was included in the other line of gross profit.
Our next question is from Jatinder Goel of Citi.
Jatinder Goel – Citi
Just a very quick one on dividends probably for Heinz. Given your dividend policies reasonably open ended, is there any thought process when would you like to receive it, is there a gearing ratio in the debt to EBITDA metric or would you wait till the end of your CapEx cycle or what’s your current thought process about dividends? Thank you.
The decision is not to recommend not to the AGM later this year it's one day I will not engage into speculation than we would receive it and it is also a matter of our Board of Directors and I would not simply speculate on those terms.
(Operator Instructions). Our next question is from Philip Ngotho from ABN Amro. Please go ahead.
Philip Ngotho – ABN Amro
My question was already asked on dividends so no more questions.
Thank you. There are no further questions over the telephone at this time.
Thank you operator and thank you everyone for joining in our call. We wish you a good day and thank you very much.
Thank you. Ladies and gentlemen that will conclude today’s conference call. Thank you for your participating and you may now disconnect.
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