Talvivaaran Kaivososakeyhtiö Oyj - Company Announcement

Talvivaara Operational and Management Update Oct 2011

Stock Exchange Release

Talvivaara Mining Company Plc

7 October 2011





                       Operational and Management Update



      Revised operating strategy focused on optimising profitability over

                      production volume in the short term



        Organisational changes commenced to reflect Talvivaara's ongoing

                evolution from a project to an operating company



Highlights

  * In  response to the current market environment and decline in nickel prices,
    short  term focus  shifted from  maximising production  volume to optimising
    profitability
  * Full year 2011 production target a minimum of 16,000t of nickel
  * Q3   2011 nickel  production  3,153t, year-to-date  output  at  the  end  of
    September 11,319t
  * Unscheduled  down-time in Q3 in metals  recovery due to reduced availability
    of the hydrogen sulphide generators
  * Significant  progress in  materials handling  and bioheapleaching with newly
    stacked heap section 1 and secondary heap being taken into production in the
    next few weeks; nickel inventory in heaps approximately 55,000t
  * Management   systems  being  improved  through  organisational  changes  and
    performance enhancing projects
  * Metal  Workers Union have  warned of a  potential strike in October/November
    2011 which may impact operations

Near term focus on profitability due to current market environment

In view of the current volatility and uncertainty in the commodity and financial
markets,  Talvivaara management has developed a  revised operating plan and made
the strategic decision to focus on maximising profitability of operations rather
than  the production volume  over the remainder  of 2011. The Company intends to
defer  capital expenditure amounting to approximately EUR 10 million into 2012,
bringing  the total estimated  capital expenditure for  the current year down to
approximately  EUR 70 million. Savings in operational expenditure will be sought
by minimising the use of contractors in materials handling and waste mining. The
scale of mining operations will also be optimised with the target of maintaining
the  current level, around  55,000t, of nickel inventories  in the heaps. Should
there  be a significant  downward movement in  the nickel price  over the coming
weeks,  further cost savings  may be sought  by temporarily discontinuing mining
and  materials handling operations.  Metals recovery will  however continue with
the target of steadily increasing production volumes.

Whilst  the  short  term  shift  in  focus  may have some impact on Talvivaara's
production volumes in 2012, the effect is not anticipated to be material as long
as the current nickel inventory in the heaps is maintained.

In  view of the short  term foreseen availability of  the metals recovery plant,
the full year 2011 production target has been rebased to a minimum of 16,000t of
nickel.

Production update

Metals recovery

Talvivaara's  third  quarter  production  suffered  from  problems  in  hydrogen
sulphide  generators  during  the  latter  half  of the period. Because hydrogen
sulphide  is an essential reagent in the metals recovery process, the unforeseen
down-time  in  the  hydrogen  sulphide  generators  had  a  direct impact on the
production  output, which for nickel amounted  to 3,153t and for zinc to 7,286t
for  the quarter.  Year-to-date production  at the  end of September amounted to
11,319t (Q1-Q3  2010: 6,550t) of  nickel  and  21,291t (Q1-Q3  2010: 16,092t) of
zinc.

Both  of Talvivaara's hydrogen sulphide generators were serviced and upgraded in
the  maintenance programme carried out during  the second quarter. Following the
maintenance,  the  generators  functioned  well,  but  the  operating  procedure
followed  in the hydrogen  sulphide process subsequently  proved more wearing to
certain heating elements than previous experience would have suggested. The need
for certain spare parts was therefore also higher than anticipated and the spare
parts  inventory proved insufficient. As delivery  times of the specialty steels
required  for the  spares were  extended, the  lack of  availability resulted in
limited capacity operation and down-time of the hydrogen sulphide generators and
subsequently  the entire  metals recovery  plant. During  the third quarter, the
overall availability of the hydrogen sulphide generators was approximately 57%,
i.e.  on average  only one  generator was  operating at  any given  time. As the
generators  also often  had to  be operated  below the  name plate capacity, the
overall capacity utilisation for the quarter was around 35%.

As  of the  beginning of  October, approximately  half of  the hydrogen sulphide
capacity  was again in  operation, and full  capacity is expected  to be reached
during the second week of the month. However, the Company anticipates regulating
the  running rate of  the generators below  the full capacity  in order to avoid
further  unscheduled stoppages and  to maximise availability  until a sufficient
inventory  of  spare  parts  has  been  received.  The  spare parts inventory is
expected  to  be  at  a  sustainable  level  by  the  year end. In the meantime,
regulation  of the run  rate is not  expected to impact  Talvivaara's ability to
meet its stated production target for the current year.

The  operating procedure  for the  hydrogen sulphide  process has  recently been
improved  such that the use of the heating elements is reduced, which in turn is
anticipated to decrease the need for spare parts in the future.

Given  the unscheduled down-time  during the third  quarter, the maintenance and
upgrade  measures originally scheduled for the  fourth quarter have already been
taken and no further stoppage is planned for the remainder of the year.

Materials handling

In  materials handling, significant progress was made in primary heap reclaiming
in  August and September.  The improved performance  came partly as  a result of
allocating  more of Talvivaara's  own staff and  equipment as well as contractor
resources  to the process, and partly as  a result of better availability of the
purpose-built  reclaiming equipment. As  a result of  all of the measures taken,
reclaiming of the primary heap is no longer a bottle-neck to the stacking of new
ore  and the  entire materials  handling process  now operates at a satisfactory
level.

Bioheapleaching

The  newly stacked primary heap section 1 was completed in September and will be
ready  to be taken into  production in the near  future. With the secondary heap
also  ready to be taken  into production, the amount  of pregnant leach solution
available  for metals  recovery will  increase substantially  over the  next few
weeks.  Previously, solution  has only  been pumped  to metals recovery from two
heap  sections at a time; hence  these developments will approximately double up
the  amount of  treatable solution  and therefore  enable significant ramp-up of
production. The increased amount of solution will also make it easier to control
and further improve the metal grades in solution.

Metal recoveries from bioheapleaching are progressing in line with expectations.
Nickel  recovery from heap  section 3 has reached  65%; production from the heap
started slightly over a year ago. Similar development is being seen also in heap
section  4 with  nickel  recovery  to  date  at  around  45%. Leaching  from the
secondary  heap is  currently progressing  faster than  from any  of the primary
heaps.

Development of management systems and organisation

During  the last three years,  Talvivaara has held its  focus tightly on solving
technical  problems in  production and  on de-bottlenecking  all of  the process
stages.  As a result,  and having proven  that all process  stages can be run at
design  capacities, management is confident that no fundamental flaws in process
technology  nor  any  significant  technical  bottle-necks exist. The management
systems  applied in the Company have however received less attention to date and
will  require improvement going forward, especially as the most recent delays in
production  ramp-up  have  been  the  result  of  systems rather than technology
related matters.

Reflecting Talvivaara's on-going transformation from a project into an operating
entity  as well  as the  increased focus  on management  systems, Talvivaara has
restructured  its production organisation.  Effective  as of 1 October 2011, the
organisation  has been divided into two  operating divisions: the ore processes,
i.e.   mining   and   materials   handling,   and  the  metals  processes,  i.e.
bioheapleaching  and  metals  recovery.  Recruitment  of senior managers to both
operating divisions is ongoing and the organisation will also be strengthened on
all  other  levels.  The  management  systems  at  the operational level will be
addressed through a detailed management consultancy evaluation during the fourth
quarter  of 2011 and a performance improvement  programme will be implemented in
2012.

All  management  systems  are  under  review  also on corporate level, including
reorganisation  of the Executive Committee and redefinition of the duties within
it.  Changes in  the composition  of the  Executive Committee  will be announced
separately.

Liquidity position

Talvivaara's  cash and cash equivalents amounted to EUR 38 million at the end of
September 2011.

In  June,  Talvivaara  signed  a  EUR  80 million revolving credit facility with
Nordea  Bank,  primarily  as  back-up  financing  relating to the acquisition of
Talvivaara  Sotkamo  shares  from  Outokumpu  Mining.  The facility is currently
available but remains undrawn.
The  Company also has obtained credit approvals from all participating banks for
an  amendment to an originally EUR  100 million revolving credit facility signed
in  June 2010. The amended facility will be  expanded to EUR 130 million and its
maturity  will be  extended by  a year  until 30 June  2014. The signing  of the
amendment  agreement is pending approvals by  Finnvera and Nyrstar to an amended
intercreditor  agreement. Once signed, the EUR 130 million facility will replace
the EUR 80 million Nordea commitment.

Strike warning by the Metal Workers Union

The  Finnish  Metal  Workers  Union  and  the  Trade Union Pro have announced an
overtime  ban to  the Finnish  technology industries.  The two  unions have also
given  a  strike  warning  to  44 companies  within  the  technology industries,
including  Talvivaara. Should an agreement with the unions not be reached in the
interim,  a  two  week  strike  from  21 October through 7 November is likely to
follow.

Talvivaara anticipates its metals recovery plant will be declared emergency work
due to environmental reasons and hence outside the scope of the strike. However,
in  the  event  the  strike  commences,  it  will  have  a significant impact on
Talvivaara's  mining and materials handling operations during the fourth quarter
and, at worst, also on metals production.

Pekka Perä, CEO of Talvivaara, commented:"Volatility  and  uncertainty  have  returned  to  the  commodity  and financial
markets,  including the nickel market. Being  faced also with ongoing production
constraints  we have announced a number of measures today to maximise short-term
profitability and address our operating and management needs.""We  are  disappointed  that  we  are  experiencing ongoing problems with metals
recovery  as a result of difficulties  with the hydrogen sulphide generators. We
believe  we have now identified improved operating procedures for the generators
and  are addressing  spares shortages  to enable  more reliable  production. The
overall  impact  of  the  metals  recovery  problems  will however constrain our
production for the current year.""The  Board recognises  that moving  from a  development to an operating company
brings  with  it  new  requirements,  and  we  are now implementing wide-ranging
changes  to our management  structure and systems  to address these. The changes
will extend throughout the organisation, including the composition and duties of
the  Executive Committee.  We will  communicate further  details of these latter
changes shortly.""Our priority remains to achieve a successful ramp-up to our planned production,
but with great emphasis on cash flow generation and profitability."

ENQUIRIES
Talvivaara Mining Company Plc  Tel: +358 20 712 9800
Pekka Perä, Chief Executive Officer
Saila Miettinen-Lähde, Chief Financial Officer

Merlin PR  Tel: +44 207 726 8400
David Simonson
Anca Spiridon

CONFERENCE CALL

A conference call on the operational and management update will be held on 7
October 2011 at 10:00 GMT/12:00 EET. The call will be held in English.

Participant - Finland: +358 (0)9 23 114 173
Participant - UK: +44 (0)1452 569 372

Conference ID: 17197066






Talvivaara Mining Company Plc

Talvivaara Mining Company is an internationally significant base metals producer
with  its  primary  focus  on  nickel  and  zinc  using  a  technology  known as
bioheapleaching  to extract metals out  of ore. Bioheapleaching makes extraction
of  metals  from  low  grade  ore  economically  viable. The Talvivaara deposits
comprise  one of the largest known sulphide  nickel resources in Europe. The ore
body  is  estimated  to  support  anticipated  production  for  several decades.
Talvivaara has secured a 10-year off-take agreement for 100 per cent of its main
output  of nickel and cobalt to Norilsk Nickel and entered into a long-term zinc
streaming  agreement with Nyrstar  NV. Talvivaara is  listed on the London Stock
Exchange  Main Market and NASDAQ  OMX Helsinki and is  included in the FTSE 250
Index. Further information can be found at www.talvivaara.com.



[HUG#1552909]

Attachments:

Talvivaara Operational and Management Update Oct 2011.pdf