Mining and smelting company Boliden AB (OMX: BOL) struggled in Q4 2011. Revenue was down 4 to 9.7 billion and operating profit slumped below 1 billion (including a 125 million future reclamation cost provision) from nearly 1.5 billion a year ago. The group was free cash flow negative for the quarter and earnings per share almost halved to 2.88 SEK.
A strong start meant that the full-year numbers still look somewhat good even vs. 2010 with clear revenue growth to 40.3 billion. Profit numbers numbers were weaker thought as operating profit slid 15% and EPS by a similar amount to 12.39. Free cash flow was just negative and the Board proposes a dividend cut of 20% to 4 SEK. Historically speaking these numbers are still very strong.
Some of the impact from lower metal prices was mitigated by hedging. The company has provided metal price and currency hedging information for following years in the year-end report. Most of the base metal derivates currently have a clear positive market value with negative valuation of precious metal forward contracts offsetting some of that in the overall number.
Boliden is positive on the global copper and zinc demand, which has recently been driven by strong Chinese growth. Boliden says that activity levels in China remained high for Q4 with high growth in investments and industrial production. The most disturbing thing for the company is the high operating cost number. The group signalled lower grades at the mines and a strike by the Finnish metalworkers as culprits.
Mineral reserve calculations were also released today. The zinc, copper, lead, gold and silver mines in the Boliden town area showed an increase of 28% in mineral resources and 10% increase in mineral reserves. Aitik copper mine near Gallivare and the Garpenberg zinc mine near Hedemora also contributed with an increase. Tara zinc and lead mine in Ireland maintained reserves. Boliden has over 50 active projects ongoing and invested 282 million in exploration in 2011.
Silver recovery process at Kokkola, Finland zinc smelter will be started up. An investment of 27 million Euros is required to start the preparation for it this April with production estimated to start in Q3 2014. Silver will be a commercial intermediate product on the plant, which is the second largest zinc smelter in Europe and number 6 in the world with annual capacity of 310,000 tonnes.
The company was mum on 2012 prospects. At its capital markets day last autumn the company spoke of stagnation or decline in mature economies with growth continuing in emerging economics, in China until 2020 and more so in other large population concentrations after 2015. Excess smelter capacity may persist for some years. The years 2012-2014 may be challenging for metals demand, which could shift the lack of concentrates resulting from global supply not matching demand for a few years. The stock shed over 6% today to close just above 115 SEK.
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