2014-02-28 11:07:31 CET
2014-02-28 11:08:22 CET
REGULATED INFORMATION
Talvivaaran Kaivososakeyhtiö Oyj - Interim Management statement
Talvivaara Mining Company Interim Management Statement for the fourth quarter and year ended 31 December 2013
Stock Exchange Release
Talvivaara Mining Company Plc
28 February 2014
Talvivaara Mining Company Interim Management Statement for the fourth quarter
and year ended 31 December 2013
Talvivaara's corporate reorganisation proceedings commenced
Highlights of Q4 2013
* Nickel production of 1,559t and zinc production of 4,179t
* Production impacted by a four week stoppage at the metals recovery plant in
November-December, due to dilute leach solutions which rendered production
uneconomical
* Bioheapleaching of the new ore heaps progressed in line with best ever heaps
historically, enabling significant improvement in solution grades following
the metals plan stoppage
* Mining and materials handling (crushing, stacking, reclaiming) operations
suspended in November for the time being due to the Company's tight
financial situation
* Talvivaara Mining Company Plc and its operating subsidiary Talvivaara
Sotkamo Ltd applied for corporate reorganisation on 15 November 2013, and
the reorganisation proceedings of the two companies commenced on 29 November
2013 and 17 December 2013, respectively
Highlights of 2013
* Nickel production of 8,662t and zinc production of 17,251t
* Water balance challenges impacted production throughout the year as a
consequence of flooding of the existing ore heaps and inactivation of the
bioheapleaching process in them
* Ore production temporarily suspended from September 2012 to mid-May 2013;
after re-start, record levels of output in mining and materials handling
were achieved
* New heaps stacked since the re-start of mining in May performed well and
started contributing to metals production in Q4 2013
* EUR 261 million rights-issue completed in April 2013; cash-burn thereafter
higher than anticipated due to the prolonged impact of water on production
and weak nickel prices
Highlights of Q1 2014 to date
* Year-to-date nickel production of 2,047t and zinc production of 3,638t until
27 February 2014
* Current month nickel production through 27 February 1,225t of nickel and
1,991t of zinc;
current February will be the best production month since August 2012
* Metals plant operating uneventfully with daily nickel production amounting
to 45-55t and nickel grade in leach solution currently at around 1.5-1.6g/l
* Ore production remains suspended until further financing is secured
Guidance for 2014
Talvivaara's operational outlook in 2014 is dependent on the success to
completion, timing and extent of the short term financing transactions currently
being negotiated. In the absence of a committed financing solution and related
operational plan for the time being, Talvivaara is not yet in a position to give
guidance on its production or its operational and capital expenditure for the
current year.
CEO Pekka Perä comments: "The past year was a very challenging period for us due
to the prolonged inhibiting effect of water on our bioleaching process and the
persistently low nickel price since last spring. As these two factors severely
impacted our cash-flows, and as substantial efforts and spending also went to
managing our water balance and its environmental impact, our financial situation
deteriorated such that we were forced to apply for corporate reorganization in
November. The reorganization proceedings are now on-going both for Talvivaara
Mining Company Plc and its operating subsidiary, Talvivaara Sotkamo Ltd, and we
are working, together with the court appointed administrator, towards finding
the short as well as the long term financing solutions for the Group going
forward.
Whilst our nickel production only amounted to 8,662 tonnes in 2013 and we ended
the year having had to suspend our mining and materials handling functions for
the time being, there are also some clear positives to be noted. Most
importantly, our new ore heaps, primary heaps 1 and 4, are performing very well
and started contributing to our metals production in the fourth quarter. The
nickel grade in solution pumped to the now steadily operating metals plant has
risen from less than 1g/l in November to around 1.5-1.6g/l currently,
demonstrating that the technology works well when the heaps are constructed and
managed properly - a lesson we have learned after having struggled with poorly
functioning heaps and excess water over the last two years. Along with the
improved metal grades, a clear proof of active leaching is also the temperature
of the solution coming out of the heaps: last winter the solution temperature
went down to 6C, while this year the lowest temperatures have remained above
20*C.
It also deserves to be noted that before suspending the mining and materials
handling operations in November, we broke all monthly production records in
these two functions and were able produce ore at annualized capacities of around
18 million tonnes, corresponding to more than 40,000 tonnes of nickel contained,
for several months in a row.
Excess water and risks related to it was one of our key focus areas throughout
2013, and although long term solutions to the water balance will continue
requiring more work, we did manage to reduce the risk level through increased
recycling of process waters and treatment and discharge of some 5.7 million
cubic meters of water from the mine area. A recent test to our water management
capabilities was the unusually mild month of December, during which practically
all snow melted, and approximately one fourth of the typical annual rainfall
fell in the area. Since December, the situation has stabilized and we anticipate
being able to manage the forthcoming spring melt with our existing water
management systems. However, we are implementing further improvements to our
reverse osmosis water treatment capacity and storage volumes in order to reach a
sustainable water balance in all conditions in the future.
For our long term future, our most important target in the near term is to
secure sufficient funds to allow us to re-start our re-claiming and mining
operations. Having these two functions operational helps us in our water
management efforts and creates the foundation on which we can again continue
ramping up our production in anticipation of volume based cost benefits as well
as improving nickel prices.
Now that our corporate reorganization proceedings and re-financing efforts are
ongoing, we have had to lay off part of our personnel for the time being, and
all our employees have had to endure uncertainty over the future of their jobs
and Talvivaara's operations. Whilst I strongly believe in the long term
viability of the Talvivaara mine, I am also sincerely grateful for our
personnel's commitment through these challenging times and look forward to
seeing their efforts carry the operation into a stable and profitable future."
Enquiries:
Talvivaara Mining Company Plc Tel. +358 20 712 9800
Pekka Perä, CEO
Saila Miettinen-Lähde, Deputy CEO and CFO
INSTINCTIF Partners Tel. +44 207 457 2020
David Simonson
Anca Spiridon
Conference call 28 February 2014 at 12.00 noon GMT / 2.00 pm EET
Participant - Finland: +358 (0)9 2313 9201
Participant - UK: +44 (0)20 7162 0077
Participant - US: +1 334 323 6201
Conference id: 942119
Nickel market remained weak for most of 2013
In 2013, the nickel market was impacted by oversupply and relatively weak
demand. Having traded at around USD 17,000-18,000/t for the first two months of
the year, the nickel price declined down to below USD 14,000/t in June and
stayed around the same level for the remainder of the year, averaging at USD
14,000/ for the second half of the year.
Whilst nickel demand in China continued to play a significant part in the nickel
market and nickel price development throughout the year, a particularly
important role was played by production of the Indonesian nickel containing iron
ore which is used to make a ferronickel product called Nickel Pig Iron ("NPI").
The NPI production has grown steadily over the recent years and was estimated at
some 460,000 tonnes in 2013, measured by nickel content, which represents
approximately 24 per cent of the global nickel supply. The majority of the NPI
is used for the production of stainless steel in China, and over the last few
years, the marginal cost of nickel production from NPI has fallen substantially
as a result of technical development. This has made NPI a cost-efficient source
of nickel for China and in part contributed to the weak nickel price development
during the past year. However, on 12 January 2014, the Indonesian government
implemented a ban on unprocessed NPI ore exports, which may have a substantial
impact on nickel supply, the average marginal cost of nickel production, and
nickel price in the future. Whilst the impact is not anticipated to be
immediate, e.g. due to reportedly large NPI stocks in China, the market outlook
towards the end of 2014 and beyond is cautiously more optimistic than still at
the end of 2013.
Global primary nickel consumption grew slightly during 2013, and Chinese
consumption was at approximately 850,000 tonnes representing approximately 45
per cent of the global market. On the supply side, global primary nickel supply
amounted to 1.9 million tonnes in 2013, leaving the market at a surplus of
approximately 100,000 tonnes. (Source: Reuters,INSG)
The EUR/USD exchange rate showed an increasing trend towards the end of the year
having traded at around 1.30 during the spring and moving up to around 1.37 by
the end of the year. Whilst the strengthening of the Euro reflected in part the
subsiding of the Eurozone crisis, it exacerbated the impact of the weak US
dollar nickel price on Euro cost based producers such as Talvivaara.
Review of operations
Q4 2013
Nickel and zinc production in Q4 2013 amounted to 1,559t and 4,179t,
respectively. Production was limited due to the low leach performance from the
two old heaps (primary heaps 2 and 3) while two new heaps (primary heaps 1 and
4) were being brought into operation, but not yet at their peak performance.
Heap 4 started positively contributing to nickel production at the end of
October and heap 1 reached positive contribution at the beginning of December.
Both heaps showed good ramp up, with performance in line with best ever leaching
results.
The production output was also impacted by an approximately four-week shut down
of the metals plant in November-December. The stoppage was taken to address the
nickel grade in the leach solution, which had depleted to levels which made
operation of the metals recovery plant uneconomical. The shut-down allowed the
leach solution grade to increase as the two new heaps increased in grade, and by
the time the plant restarted, nickel grade in solution had increased from
0.7g/l to 1.3g/l. The nickel grade in solution pumped to the metals plant has
since continued to rise despite high production rates from the new heaps.
Significant effort was made during the period to improve the leaching
performance of heaps 2 and 3. These heaps have struggled to operate since 2012
when heavy rains resulted in the heaps flooding and the leach reaction
practically stopping. Acid addition to the heaps was increased to help modify pH
and return the heaps to better leach conditions. Modifications to the surface of
the heaps were also made and aeration pipes re-opened to improve solution
percolation and aeration. Some of these actions showed promising short term
gains but the improvements were not sufficient to justify continued additional
costs of the actions taken.
Due to the financial situation of the Company, all mining and materials handling
operations were suspended from 13 November 2013. Prior to the suspension, mining
and materials handling operated well during the quarter, with new records being
achieved for mined tonnes, and tonnes crushed. Just prior to the suspension,
significant improvements had also been made in reclaiming allowing major
bottlenecks in the process to be identified and removed.
Q1 2014 up to 27 February
As a result of the improved grades in leach solution from the new primary heaps
1 and 4, the nickel grade in solution pumped to the metals plant has risen to
around 1.5-1.6g/l currently. The metals plant has operated steadily during the
early part of 2014 and is currently producing 45-55t of nickel on a daily basis.
The year-to-date production through 27 February 2014 has totalled 2,047t of
nickel and 3,638t of zinc. The current month production through 27 February
2014 has amounted to 1,225t of nickel and 1,991t of zinc, making this February
the best production month since August 2012.
The cost efficiency of production at the metals plant has significantly improved
as a result of the higher metal grades in solution as well as the substantially
higher temperature of the leach solution compared to the winter of 2013. The
increased solution temperature, around 20°C this winter vs. 6°C the year before,
reflects the high level of chemical and biological activity in the new primary
heaps 1 and 4.
Mining and materials handling remain suspended for the time being, with re-start
planned for Q2 2014 but subject to securing sufficient further financing.
Full year 2013
Talvivaara closed the year having produced 8,662t of nickel (2012: 12,916t) and
17,251t of zinc (2012: 25,867t). Over the course of 2013, Talvivaara's
operations continued to be impacted by water balance issues stemming from the
heavy rains of 2012 and the gypsum pond leaks of November 2012 and April 2013;
hence one of the key areas of activity was to establish measures to purify and
release excess waters captured at the mine area. Ore production re-commenced in
mid-May 2013 after having been suspended from September 2012 due to excess water
in the open pit. After successful operation from May to November, ore production
was again suspended, this time for financial reasons. Metal grades in the
bioleaching solutions suffered from the prolonged effects of water on the old
heaps and decreased through most of the year until the newly stacked ore started
to contribute to production in the fourth quarter. Metals recovery plant
operation and availability improved steadily through the year without any
extended stoppages relating to unexpected equipment failures.
Mining and materials handling produced 7.4Mt and processed 7.6Mt of ore (2012:
8.7Mt), and mined 3.1Mt of waste (2012: 5.3Mt) in 2013 during the six months
from May to November that these functions were operational. A record production
level of 1.66Mt per month was achieved in October before the operation was
suspended. The amount of nickel in the ore stacked to leaching in October was
4,064t. The step change seen in the productivity, quality and capacity of mining
and materials handling was achieved through stricter grade control, increased
cut-off grade, enhancement of the agglomerate quality control, focus on unit
costs, and de-bottlenecking of the reclaiming operation.
In bioheapleaching the average nickel grade through the year was 0.97g/l.
Special attention was paid to various operational measures to enhance the
performance of the existing heaps and to ensure outstanding start-up of the new
heaps. Significant improvement compared to the previous year was achieved with
the new heaps, whereas the actions to improve the operation of the old heaps 2
and 3 proved not to be cost efficient enough. The well performing new heaps,
which cover approximately 40 per cent of the total primary leaching area,
together with the secondary leaching, enabled the realized increase in metals
production at the year end and going into 2014.
In metals recovery, plant stability and availability continued to improved
compared to previous years. De-bottlenecking actions were successfully executed
allowing leach solution flow rate to increase up to 1,750m3/h. The average feed
flow rate for the entire year was 1,142 m3/h. Unexpected process or equipment
related downtime was approximately one week through the entire year, proving
maturity of the processing technology.
The challenging water balance situation continued throughout the year 2013.
Additional storage and purification capacity was built for stored contaminated
waters and reverse osmosis units were commissioned mid-2013 for purifying
circulated water for metals recovery plant usage.
Production key figures
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Q4 Q4 FY FY
2013 2012 2013 2012
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Mining
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Ore production Mt 1.6 - 7.4 8.7
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Waste production Mt 0.9 1.2 3.1 5.3
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Materials handling
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Stacked ore Mt 1.7 - 7.6 8.7
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Bioheapleaching
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Ore under leaching Mt 51.8 44.3 51.8 44.3
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Metals recovery
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Nickel metal content Tonnes 1,559 2,317 8,662 12,916
------------------------------------------------------
Zinc metal content Tonnes 4,179 4,106 17,251 25,867
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Financial status and going concern
On 10 October 2013, the Company announced that, as the market price of nickel
had declined by more than 20 per cent since the first quarter of 2013 and as
Talvivaara's production had continued to be impacted by the prolonged effects of
excess water on older ore heaps, Talvivaara's liquidity position had weakened
more than anticipated. In addition, on 7 November 2013, Talvivaara announced in
its interim report for the nine months ended 30 September 2013 that it was in
advanced discussions with certain stakeholders concerning a financing solution
that would address Talvivaara's current liquidity needs. On 15 November 2013,
the Company announced that it had become evident as a result of such discussions
that additional liquidity would not be available for Talvivaara as part of a
voluntary restructuring. Therefore, the Company and its operating subsidiary
Talvivaara Sotkamo applied for a corporate reorganisation on 15 November 2013 by
filing related applications with the district court of Espoo, Finland. The
district court of Espoo took the decision to commence a corporate reorganisation
process in respect of the Company on 29 November 2013 and in respect of
Talvivaara Sotkamo on 17 December 2013.
As at 31 December 2013, Talvivaara had cash and cash equivalents amounting to
EUR 5.9 million. As a result of cash generated from nickel and cobalt sales
since then, and the cost savings made by restricting operations, the Company has
been able to continue operations for the time being. However, in the absence of
further funding, the Company's liquidity situation remains critical. Talvivaara
is, together with the Administrator, in active discussion with certain parties
regarding bridge funding and will inform the markets about the progress in due
course. In addition, the Company is also in discussions with certain parties
regarding a long-term financing solution for Talvivaara
As also stated in connection with the Company's Q3 2013 results, the directors
have in the current circumstances concluded that there exists a material
uncertainty that casts significant doubt upon the Company and Talvivaara
Sotkamo's ability to continue as a going concern and that, therefore, the Group
may be unable to realise its assets and discharge its liabilities in the normal
course of business.
Anticipated impairment charges in FY 2013 accounts
Deferred tax assets
Talvivaara has continued to recognise deferred tax assets on its consolidated
balance sheet through Q3 2013 and the amount of deferred tax assets recognized
on tax loss carryforwards as at 30 September 2013 amounted to EUR 136.5 million
(31 December 2012: EUR 103.8 million). In its Q3 2013 interim results, the
Company announced having reviewed the past operational challenges which have led
to lower than expected production and profitability levels at the Talvivaara
mine. It was further noted that if Talvivaara generates future taxable profits
lower than those assumed by the management in determining the amounts of the
recognized deferred tax assets, the assets may become impaired, either in part
or in full. Accordingly, the amounts recognized on the balance sheet could be
reversed through profit and loss.
Having now undertaken a review of the amount of deferred tax assets recognized
on tax loss carryforwards, the management has, due to the historical losses of
the mine project, the experienced delays in the ramp-up process and the current
financial situation of the Company, concluded that it will de-recognize deferred
tax assets in the amount of EUR 80.5 million in its FY 2013 results, leaving the
Company with a zero net deferred tax position.
Despite the de-recognition of the deferred tax assets, subject to Talvivaara
obtaining sufficient financing to continue the ramp-up of its operations, the
Group may be able generate sufficient taxable profits so that all of the
deferred tax assets could be utilized in the future.
Potential impairment of inventory and property, plant and equipment
Talvivaara is currently reviewing the valuation of its inventories, and its
property, plant and equipment. The management sees is likely that substantial
impairments to these will be made in the Company's FY 2013 results.
Progress of corporate reorganisation
Upon deciding to commence the reorganisation proceedings of the Company and
Talvivaara Sotkamo on 29 November 2013 and 17 December 2013, respectively, the
district court of Espoo appointed Mr. Pekka Jaatinen, Attorney-at-Law, from
Castrèn & Snellman Attorneys Ltd. to act as the Administrator for both
processes.
On 17 January 2014, the District Court of Espoo, Finland, issued a ruling in
respect of certain deadlines in connection with the Company's and Talvivaara
Sotkamo's respective corporate reorganisations. According to the Court's ruling,
reports on the financial status of both companies have to be completed by 28
March 2014, and proposals for their respective reorganisation plans must be
submitted by the Administrator by 28 May 2014. Furthermore, the District Court
of Espoo, Finland, has appointed creditor committees in connection with the
corporate reorganisations of the Company and Talvivaara Sotkamo, which will act
as the joint representatives of the creditors in the reorganisation proceedings.
Various creditor groups, including secured creditors, other debt financiers, as
well as business partners and subcontractors essential for the operations of
both companies, will be represented in the creditor committees appointed by the
Court. The creditor committees of the Company and Talvivaara Sotkamo shall each
have the same composition.Financing and commercial arrangements
Uranium off-take agreement with Cameco
In February 2013 Talvivaara entered into an amendment agreement with Cameco.
Under the agreement the amount of the up-front investment that Cameco is to pay
to Talvivaara for the construction of the uranium extraction facility was
increased by USD 10 million to USD 70 million, and the duration of the amendment
agreement extended to 31 December 2017 and commercial terms revised accordingly.
Cameco paid the additional up-front payment in February 2013.
Zinc streaming agreement with Nyrstar
On 14 February 2013, Talvivaara Sotkamo entered into an amendment agreement with
Nyrstar regarding the zinc in concentrate streaming agreement pursuant to which
Nyrstar made an additional up-front payment of EUR 12 million to Talvivaara
Sotkamo in return for Talvivaara Sotkamo agreeing not to charge Nyrstar the EUR
350 per tonne extraction and processing fee on the next 38,000 tonnes of zinc in
concentrate delivered to Nyrstar as was agreed in the original zinc in
concentrate streaming agreement. The up-front payment was received in February
2013.
Share issue pursuant to the shareholders' pre-emptive subscription right
On 8 March 2013, an Extraordinary General Meeting of Talvivaara Mining Company
resolved to approve the proposal by the Board of Directors to authorise the
Board of Directors to undertake a share issue for consideration pursuant to the
shareholders' pre-emptive subscription right. The share issue was finalised in
April and all 1,633,857,840 new shares offered in the rights issue were
subscribed for. The gross proceeds amounted to approximately EUR 261 million and
the total number of shares in Talvivaara Mining Company increased to
1,906,167,480 shares.
Geology
In early 2013 Talvivaara undertook a project to update its ore reserves
estimates and anticipated announcing the new reserves during the second half of
2013. However, due to the Company's prioritization of the use of human resources
and funds during the course of 2013 and currently, the finalization of the
reserves has been postponed for the time being. Talvivaara notes, however, that
the mineral resources in Talvivaara remain at above 2 billion tonnes of ore, and
that the short to medium term mine plan is not impacted by the delay in updating
the ore reserves.
Sustainable development, safety and permitting
Sustainable development and the environment
Water management continued to be in focus at Talvivaara also in 2013. A specific
water management organization was established for the purpose and also a
temporary assignment, Project Otter, was established to deal with the acute
water balance situation. One of the key targets of Project Otter was to separate
rain and run-off waters from contaminated waters to minimize the amount of
waters having to be treated prior to discharge. In 2013 the Company succeeded in
substantially reducing the catchment area by new dams, trenching and pumping
stations. Through the reduction of the catchment area, e.g. the amount of run-
off waters that accumulated in the Kortelampi dam during the spring melt was
also significantly decreased. In total, some 5.7 million cubic meters of treated
waters were discharged from the mine area in 2013.
Subsequent to the earlier leak in Talvivaara's gypsum pond in November 2012, a
new leak in it occurred on 7 April 2013. In total approximately 400,000 cubic
meters of water was leaked. The leak was blocked within 24 hours of its start
and no leakage waters escaped outside the mining area, as all of the waters were
caught in emergency ponds and dams. The location of the leak was in an adjacent
section to the section that leaked in November 2012. The risk level related to
the water stored in the gypsum pond has since the leak been lowered by reducing
the amount of water in the pond. Currently, there is still approximately one
million cubic meters of excess water in gypsum pond section 5 and 6.
Neutralisation of this water commenced during the autumn of 2013, and in
compliance with the request by the relevant authorities, the excess water will
be removed from the gypsum pond by the early autumn of 2014.
During the summer and autumn of 2013, the emergency volumes of the
bioheapleaching circulation were substantially increased as a result of
effective evaporation from the heaps. The emergency volumes in the heap
circulation decreased again towards the end of 2013 due to the unseasonal rains
and melting of snow in December, which resulted in approximately 1.2 million
cubic meters of additional water in the mining area. In order to alleviate the
situation and to secure sufficient emergency volumes, Talvivaara had to remove
water from the heap circulation and store a total of some 141,000 cubic meters
of raffinate, the metals plant return solution, in the open pit which still
contains also waters stored there in 2012. The emergency volumes in leach
circulation reduced again due to freezing of the irrigation system in the poorly
functioning primary heaps 2 and 3 in January 2014, resulting in the Company
having to pump another approximately 167,000 cubic meters of raffinate partly to
the open pit and partly to the empty solution ponds of the uranium recovery
plant. In addition to the raffinate, some 176,000 cubic meters of solution,
which contained dilute secondary heap leach solution and run-off waters from the
waste rock area, was pumped into the open pit, as the raffinate discharge alone
did not remove enough water from the heap circulation. Talvivaara will treat the
waters stored in the open pit along with other excess waters in accordance with
the requirements set in its environmental permit.
Talvivaara reached a significant milestone in its water management, when in
October 2013 a closed circuit of process waters at the metals plant was
achieved. As a result of the closed circuit, the plant can in normal
circumstances be operated without additional raw water intake and use the water
produced by the reverse osmosis units.
As a result of investments made already in the previous years, the odour
discharges relating to hydrogen sulphide and dust emissions from the mining
operations have been clearly within the permitted limits. This has been evident
also from the reduced number of related notices by the neighbours. In 2013,
odour inducing concentrations decreased further by approximately 30 per cent and
the odour related notices made by the neighbouring residents reduced by 60 per
cent.
In 2013 the International Nickel Institute conducted an international life cycle
analysis of nickel, covering almost all western world nickel producers.
According to the study, Talvivaara's climate and environmental impact as well as
energy consumption per ton of nickel produced are clearly below the average of
the nickel industry. Due to the energy efficient process used by the Company,
Talvivaara's greenhouse gas emissions are 39 per cent and the usage of primary
energy 21 per cent lower than those of the average nickel producer. Talvivaara's
sulphur dioxide emissions are only 2 per cent of the average of all nickel
producers.
Talvivaara has since 2010 had a certified ISO 14001 standard compliant
environmental management system. The Company is also preparing for the
implementation of ISO 9001 standard compliant quality and OHSAS 18001 compliant
occupational health and safety management systems. Certification of these
systems is anticipated to be sought in 2015.
Safety
With respect to safety issues Talvivaara's goal is a safe and healthy working
environment. The Company is committed to continuously improving its process,
product and occupational safety. In 2013 Talvivaara focused on the improvement
of the entire organisation's safety culture.
In the autumn of 2013, an independent safety consultant, DuPont, conducted an
initial evaluation of Talvivaara's safety culture. Talvivaara will develop its
operations in the future based on the improvement proposals made by DuPont, and
the evaluation along with the improvement plans will help Talvivaara in its
pursuit towards its zero accident target.
The injury frequency in 2013 was 30.4 lost time injuries/million working hours
(2012: 16.6 lost time injuries/million working hours).
Permitting
At the end of May 2013, Talvivaara received from the Northern Finland Regional
State Administrative Agency ("AVI") an environmental permit decision relating to
the storage, treatment and discharge of waters to the Oulujoki and Vuoksi water
systems. The permit decision contains regulations pertaining to, amongst others,
treatment and storage of waters and permit limits for discharges into downstream
water ways. The permit decision removes the annual 1.3 million cubic meters
discharge quota for purified waste waters, which has in part caused the
accumulation of excess waters at the mine site. The permit conditions pertaining
to maximum concentrations of harmful substances, among others sulphate, and
maximum discharge flow rate will however restrict the volume of discharged
waters in the future.
The permit decision required the Company to direct the water contained in the
existing gypsum ponds to neutralisation or back to leach solution circulation by
31 October 2013. The Vaasa Administrative Court subsequently extended the
deadline until the end of 2013. After this, the Company applied for and obtained
permission from the AVI for a two-staged emptying schedule such that section 5
of the gypsum pond should be void of excess water by the end of January 2014,
and section 6 by the end of August 2014. Prior to the end of January, Talvivaara
notified the Kainuu Centre for Economic Development, Transport and the
Environment ("Kainuu ELY-Centre") of its inability to comply with the interim
deadline of January, however stating that the Company believes the final
emptying deadline for the entire pond to be achievable. After this, the Kainuu
ELY-Centre has requested section 5 of the gypsum pond to be emptied of excess
water and the Kortelampi dam to be arranged sufficient emergency volume for all
waters currently contained in the gypsum pond by 1 April 2014. Talvivaara has,
in turn, noted to the ELY-Centre that the requested timetable is not technically
feasible and that a realistic deadline would rather be 15 May 2014.
The renewal of Talvivaara's environmental and water permit and the environmental
permit application for uranium extraction are being processed at the AVI. The
Company expects decisions on both permits during the spring of 2014.
Following the corporate reorganization applications of Talvivaara Mining Company
Plc and Talvivaara Sotkamo Ltd, the Supreme Administrative Court returned the
uranium extraction permit originally granted in 2012 for reassessment by the
Finnish Government. Whilst the timetable for the reassessment is currently not
known, this has no impact on the processing of and decisions by AVI relating to
the environmental permit for uranium extraction.
Risk management and key risks
In line with current corporate governance guidelines on risk management,
Talvivaara carries out an on-going process endorsed by the Board of Directors to
identify risks, measure their impact against certain assumptions and implement
the necessary proactive steps to manage these risks.
During 2013, the Company's focus was on developing its hazardous risk management
and contingency planning. As a result, a new risk register for environmental,
safety and accident risks was introduced. Contingency planning focused primarily
on hazard risks such power failure and dam or pond leakages.
Talvivaara's operations are affected by various risks common to the mining
industry, such as risks relating to the development of Talvivaara's mineral
deposits, estimates of reserves and resources, infrastructure risks, and
volatility of commodity prices. There are also risks related to counterparties,
currency exchange ratios, management and control systems, historical losses and
uncertainties about the future profitability of Talvivaara, dependence on key
personnel, effect of laws, governmental regulations and related costs,
environmental hazards, and risks related to Talvivaara's mining concessions and
permits.
Liquidity and refinancing risks may arise as a result of the Company's inability
to produce sufficient volumes of its saleable products, particularly nickel,
unexpected increase in production costs, and sudden or substantial changes in
the prices of commodities or currency exchange rates. In the second half of
2013, the liquidity and refinancing risks realized as a result of persistent
production problems relating to excess water, and due to a substantial fall in
the nickel price. As a result, Talvivaara and its operating subsidiary
Talvivaara Sotkamo Ltd. were unable to obtain new financing and applied for
corporate reorganization, which for the two companies commenced on 29 November
2013 and 17 December 2013, respectively. Going forward, Talvivaara's key
financial and operational risks relate to the on-going corporate reorganisation
proceedings and Talvivaara's ability to obtain sufficient additional funding to
continue its operations and to return to the planned ramp-up of production.
Operationally, the Company has to date demonstrated that all of its production
processes work and can be operated on industrial scale, however the rate of
ramp-up is still subject to risk factors including the reliability and
sustainable capacity of production equipment, and eventual speed of leaching and
rates of metals recovery in bioheapleaching. In addition, the return to
production ramp-up remains subject to further financing for the time being and
there may also be production and ramp-up related risks that are currently
unknown or beyond the Company's control.
The market price of nickel has historically been volatile and in the Company's
view this is likely to persist, driven by shifts in the supply-demand balance,
macroeconomic indicators and variations in currency exchange ratios. Nickel
sales currently represent close to 90% of the Company's revenues and variations
in the nickel price therefore have a direct and significant effect on
Talvivaara's financial result and economic viability. Talvivaara is, since
February 2010, unhedged against variations in metal prices. Full or
substantially full exposure to nickel prices is in line with Talvivaara's
strategy and supported by the Company's view that it can operate the Talvivaara
mine, once it has been fully ramped up, profitably also during the lows of
commodity price cycles.
Talvivaara's revenues are almost entirely in US dollars, whilst the majority of
the Company's costs are incurred in Euro. Potential strengthening of the Euro
against the US dollar could thus have a material adverse effect on the business
and financial condition of the Company. Talvivaara hedges its exposure to the US
dollar on a case by case basis with the aim of limiting the adverse effects of
US dollar weakness as considered justified from time to time.
Personnel
Talvivaara's headcount decreased somewhat from the previous year and was 549 at
the end of 2013 (2012: 588). At the end of 2013, 87.1 per cent (2012: 88.1 per
cent) of Talvivaara's employees were men and 12.9 per cent (2012: 11.9 per cent)
were women. The average age of Company's employees was 37.9 years (2012: 37.8
years).
The challenges of 2013 year were also reflected on the Company's employees.
During the year Talvivaara adjusted its headcount to the prevailing production,
first in February and again in July by temporary lay-offs affecting part of the
personnel. As the Company's financial condition continued to weaken, Talvivaara
applied for corporate reorganization in November and started its third set of
co-operation consultations for the year. These were concluded in the beginning
of January 2014 and as a result, Talvivaara decided to lay-off gradually 246
employees for undefined period to support the reorganization process.
The salaries and wages of Talvivaara's personnel are based on industry-wide
collective agreements. The total compensation consists of base salary and short
and long term incentive schemes. Annual short term incentive metrics include
personal performance and company-wide criteria. The Company's long term
incentive schemes comprise Talvivaara's Stock Options 2007, Stock Options 2011
and Group personnel fund to manage the earnings bonuses paid by Talvivaara. In
addition, the management holding company Talvivaara Management Oy is owned by
executive management and certain other key employees.
Corporate governance statement
Talvivaara issues its Corporate Governance Statement of 2013 and publishes it on
the Company's website at www.talvivaara.com on 27 March 2014, in connection with
the announcement of its full-year 2013 financial results.
Key events during the first quarter of 2014 to date
Participation in Fennovoima nuclear power project
Talvivaara announced on 21 February 2014 its support for the Fennovoima nuclear
power project, but noted that in the current circumstances the Company focuses
all its financial resources on the Sotkamo operation and the ongoing corporate
reorganization process. Therefore Talvivaara gives no commitment at the moment
for the additional funding of the Fennovoima project. Once further clarity into
the Talvivaara situation is obtained and the reorganization process proceeds,
the Company can reassess its ability to finance the Fennovoima project.
Changes in Talvivaara Management
Lassi Lammassaari, M.Sc. (Environmental Engineering) has been appointed Chief
Corporate Development Officer as of 27 February 2014. He will be leading a new
Corporate Development function, which will be focusing on industrial
engineering, planning and development. Lassi Lammassaari has held several
positions at Talvivaara since 2005, most lately as Senior Vice President -
Projects. He will be a member of the Executive Committee and will report to in
this new position to CEO Pekka Perä.
Short-term outlook
Market outlook
The LME nickel price has shown some recovery since the implementation of the
Indonesian NPI ore export ban in January 2014, moving from levels clearly below
USD 14,000/t to around USD 14,300/t recently. The still remaining NPI stocks in
China and the supply surplus that is anticipated to persist on the market during
the current year are likely to continue weighing on the nickel price in the
coming months such that substantial further price movements are not expected.
However, a cautiously more optimistic view towards the end of the year could be
taken, provided the Indonesian ore export ban stays in force and the nickel
price starts subsequently reflecting the increasing marginal cost of production
across the nickel industry and lack of new committed nickel projects to replace
depleting supply after the next few years.
Operational outlook
The operational outlook for Talvivaara is greatly dependent on the success to
closing, timing and extent of the short as well longer term financing solutions
currently under negotiation. With the Company's liquidity position allowing, the
key operational priority is to start reclaiming old primary heaps 2 and 3 as
soon as possible, preferably in the beginning of Q2 2014 at latest. Moving these
heaps to the secondary pad will allow the so far poorly leached ore to be
reconditioned and for leaching to be restarted. There is significant unleached
nickel in these two heaps, which will improve production in the coming months
prior to leaching from any newly mined and stacked ore can start contributing to
production. The Company plans to re-start mining in June, provided sufficient
financing is in place at the time. Operationally, Talvivaara believes the pre-
requisites for continued production ramp-up to be in place with substantial
improvements having been made over the recent months in bioheapleaching, as well
as in mining and materials handling prior to their suspension in November.
Furthermore, the metals plant is currently operating uneventfully.
Environmentally, Talvivaara's key focus is on managing the overall site water
balance. Firstly, this means continued reduction of the overall catchment area
at the site to minimise the amount of precipitation and run-off waters needing
treatment prior to release. Secondly, the most important water management
actions also include maximising the operation of the reverse osmosis water
purification units and minimizing the amount of fresh water needed within the
operation under any operating conditions. Thirdly, the Company targets at
managing its process to be able to discharge all new precipitation entering the
site as well as reducing the volume of legacy waters still contained on site,
thereby reducing the overall water balance of the mine area.
28 February 2014
Talvivaara Mining Company Plc
Board of Directors
[HUG#1765508]
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