2017-03-21 11:01:50 CET
2017-03-21 11:01:50 CET
REGULATED INFORMATION
Talvivaaran Kaivososakeyhtiö Oyj - Annual Financial Report
Talvivaara Mining Company annual results review for the year ended 31 December 2016
Stock Exchange Release
Talvivaara Mining Company Plc
21 March 2017
Talvivaara Mining Company annual results review for the year ended 31 December
2016
Key events 2016
* Talvivaara Mining Company Plc's ("Talvivaara" or the "Parent Company")
Financial Statements for the financial year ended 31 December 2016 have not
been prepared on a going concern basis. The chosen reporting basis results
from the existence of material uncertainties that cast significant doubt
upon the Parent Company's ability to realise its assets and discharge its
liabilities in the normal course of business and from the lack of visibility
on Talvivaara's operational environment twelve months beyond the date of
reporting.
* On 30 June 2016, Talvivaara and Terrafame Oy signed agreements, in which the
parties agreed on the sale of Talvivaara's assets related to the Sotkamo
mining operations and settlement of Talvivaara's guarantee liabilities under
the Streaming Holiday Agreement, amounting to approximately EUR 14 million,
and the Streaming Agreement, amounting to approximately EUR 203.4 million.
* Under the agreements, all main assets of Talvivaara previously generating
income were transferred to Terrafame Oy. However, the arrangement materially
improved the possibility for the completion of Talvivaara's corporate
restructuring proceedings and facilitated the development of Talvivaara's
new business opportunities.
* The sale of the assets was approved by Talvivaara's extraordinary general
meeting of shareholders on 11 August 2016.
* On 4 October 2016 Talvivaara's fully owned subsidiary, FATB Oy signed a
conditional agreement for the acquisition of technology that aims to enhance
the energy efficiency of the electric arc steel making process.
* On 24 November 2016 Talvivaara announced that it had decided to execute a
directed conversion issue in accordance with the draft restructuring
programme. The Parent Company offered up to 4,000,000,000 new shares for
subscription, in deviation of the shareholders' pre-emptive subscription
right, to all holders of unsecured restructuring debt in accordance with the
draft restructuring programme.
* The suspension of trading of Talvivaara's shares continues on the date of
the Talvivaara's annual results announcement on 21 March 2017.
* Reported operating profit EUR 214 million, resulting mainly from the
reversal of the provision of EUR 203.4 million and EUR 11 million capital
gains resulting from the sale of the mining related assets.
Key events of 2017 to date
* A total of 2,081,653,010 new shares in the Parent Company were subscribed in
the conversion issue and thus Talvivaara's debt was reduced by a total of
EUR 238,141,136.72. The total number of Talvivaara's shares increased into
4,189,807,162 shares.
* The acquisition of the energy saving technology business was closed on 31
January 2017.
* In addition to the acquired energy saving technology business, Talvivaara
has initiated a commercialization project, based on its chemical engineering
expertise, focusing on developing more efficient use of nutrients and energy
production from renewable raw materials related to livestock farming.
Talvivaara is also studying and further developing a number of other
business opportunities that could meet its investment requirements in the
short term.
* On 2 February 2017 Talvivaara's extraordinary general meeting of
shareholders authorised the Board of Directors to resolve on a share issue
for consideration pursuant to the shareholders' pre-emptive subscription
right to raise the funds needed to pay the remaining restructuring debts of
Talvivaara and/or to finance the development of new business opportunities.
Based on the authorization, the number of shares which can be issued through
one or several share issues shall not exceed 40,000,000,000 shares in
aggregate.
* The Administrator of corporate reorganisation proceedings filed a request
for confirmation of Talvivaara's Restructuring Programme to the District
Court of Espoo on 6 March 2017. According to the Administrator, all the
special conditions set for the confirmation and entry into force of the
Restructuring Programme have been fulfilled.
The numbers in this release are based on audited financial statements.
Enquiries
Talvivaara Mining Company Plc Puh +358 20 7129 800
Pekka Perä, CEO
Pekka Erkinheimo, Deputy CEO
Talvivaara's annual results review 2016
Introduction
Following the bankruptcy of Parent Company's operating subsidiary Talvivaara
Sotkamo Ltd ("Talvivaara Sotkamo") on 6 November 2014, trading of Talvivaara's
shares on the Helsinki Stock Exchange was suspended. The suspension of trading
continues on the date of the Group's Financial Statements 20 March 2017.
Talvivaara has been in corporate reorganisation throughout the review period of
1 January 2016 - 31 December 2016. During the corporate reorganisation
proceedings, all major decisions and decisions outside the ordinary course of
business have required consent of the administrator of the corporate
reorganisation proceedings (the "Administrator").
Talvivaara's Financial Statements for the reporting period 1 January - 31
December 2016 have not been prepared on a going concern basis. The chosen
reporting basis results from the existence of material uncertainties that cast
significant doubt upon the Parent Company's ability to realise its assets and
discharge its liabilities in the normal course of business and from the lack of
visibility on the Parent Company's operational environment twelve months beyond
the date of reporting. The Administrator has on 6 March 2017 filed a request
with the District Court of Espoo to confirm Talvivaara's final draft
restructuring programme dated 10 April 2015, but Talvivaara's ability to revise
its reporting basis and to regain its status as a going concern is also
dependent on the Parent Company's ability to secure the necessary cash flow to
discharge all of the Parent Company's liabilities (including the remaining
restructuring debts) and to continue transforming the identified business
opportunities into viable businesses. The arrangement concluded with Terrafame
Oy on 30 June 2016 and the confirmation request filed by the Administrator on 6
March 2017 have, in the view of the Parent Company, materially improved the
Parent Company's possibilities for reaching the afore-mentioned targets. For
more information, see sections 'Review of Operations' and 'Events after the
review period'.
Review of Operations
Talvivaara and the bankruptcy estate of Talvivaara Sotkamo entered into the
Administration and Laboratory Services Agreement and the Agreement on Lease of
Lime and Limestone Handling Plant and Reception Station on 19 November 2014. The
agreements detailed the Parent Company's personnel resources and equipment that
were available and critical for environmentally and occupationally safe
operations at the Sotkamo mine and stated the agreed pricing for the services
provided. The rights and obligations of the bankruptcy estate of Talvivaara
Sotkamo under the aforementioned agreements were transferred to Terrafame Oy, a
100% subsidiary of the state-owned company Terrafame Group Oy on 13 August
2015. The transfer of the mining business from the bankruptcy estate of
Talvivaara Sotkamo to Terrafame Oy was completed on 14 August 2015.
On 27 January 2016, Talvivaara, Terrafame Group Oy and its subsidiaries,
Terrafame Oy and Winttal Oy, signed a letter of intent ("Letter of Intent"), in
which the parties provisionally agreed on the essential terms and conditions for
the sale of Talvivaara's assets related to the Sotkamo mining operations. Assets
to be sold would have included, among others, the lime plant needed in the
Sotkamo operations, laboratory business, as well as ownership of the geological
and production data associated with the mine.
On 3 February 2016, the Parent Company announced that the parties had agreed to
extend the deadline set for the finalization and approval of the detailed
agreements under the Letter of Intent until the decision of the Administrative
Court had been received.
On 28 April 2016, the Vaasa Administrative Court gave its ruling, among others,
on the Nuasjärvi discharge pipe line. The outcome of the ruling deviated
adversely from the one applied for by Terrafame Oy, in addition to which the
ruling changed the essential environmental permits of the Sotkamo mining
operations into temporary permits. The Parent Company and Terrafame started
assessing the decision and its effects on the contemplated arrangement under the
Letter of Intent.
On 2 June 2016, the Terrafame -entities informed the Parent Company that they
would no longer pursue the contemplated arrangement under the Letter of Intent
of 28 January 2016. Terrafame Oy also informed the Parent Company that Winttal
Ltd had assigned to Terrafame Oy all its rights, title, benefit and interest
under the Streaming Agreement and the Streaming Holiday Agreement and requested
the Parent Company to immediately pay the receivable under the Streaming Holiday
Agreement amounting in total to approximately 12.8 million euros. The liability
of the Parent Company under the Streaming Holiday Agreement was based on the
guarantee issued by the Company for the due payment of loans drawn by Talvivaara
Sotkamo from Nyrstar under the Streaming Holiday Agreement. Furthermore,
Terrafame Oy stated that, given lack of immediate repayment, it would offset the
above mentioned receivables against the receivables of the Parent Company from
Terrafame Oy under the service and lease agreements between the parties.
On 30 June 2016, Talvivaara and Terrafame Oy signed agreements, in which the
parties agreed on the sale of Talvivaara's assets related to the Sotkamo mining
operations and settlement of Talvivaara's guarantee liabilities under the
Streaming Holiday Agreement, with the principal amount of approximately EUR 14
million (including interest up until 30 June 2016), and the Streaming Agreement,
amounting to approximately EUR 203.4 million. The assets sold include, among
others, the lime plant needed for the Sotkamo operations, laboratory, as well as
rights to the geological, laboratory and production related data associated with
the Sotkamo mine. The purchase price for the assets sold consisted of two
components: (i) a full and final settlement of the guarantee liabilities of the
Company under the Holiday Agreement and the Streaming Agreement, and (ii) a cash
component of EUR 1.4 million payable by Terrafame Oy at closing. The agreement
had no effect on the identified restructuring debts of the Company, including
the receivables of certain commercial banks and Finnvera Plc.
The parties had further agreed on the transfer of the laboratory personnel to
Terrafame as old employees, as well as on the possibility for Terrafame to
recruit certain of Talvivaara's personnel currently providing services related
to operation of the mine. The parties agreed to terminate the service agreement
and the lime plant lease agreement of 19 November 2014, which were transferred
to Terrafame Oy on 14 August 2015, with effect as of 30 June 2016.
Under the agreements, all main assets of Talvivaara previously generating income
for Talvivaara were transferred to Terrafame Oy. However, the arrangement
materially improved the possibility for the completion of Talvivaara's corporate
restructuring proceedings and facilitated the development of Talvivaara's new
business opportunities. The agreements included a cancellation clause whereby
the transactions under the agreements would become null and void in the event
the extraordinary general meeting of shareholders of Talvivaara did not approve
the transactions under the agreements. The extraordinary general meeting of
shareholders of Talvivaara approved the transactions on 11 August 2016.
On 20 September 2016, the Parent Company published a statement by the
Administrator, according to which the only special conditions of Talvivaara's
final draft restructuring programme left to be fulfilled were the special
condition (b)(2): Talvivaara executing or authorising the board of directors to
execute a financial arrangement to raise the funds needed, inter alia, for
repaying the remaining restructuring debts and for covering other possible
liabilities to the extent the Company's other funds are not sufficient for such
purpose; and the special condition (c): Talvivaara completing the proceedings
for converting the restructuring debts into shares in the Parent Company, and
the new shares having been registered in the Trade Register. In addition, the
Administrator stated that the fulfilment of all the special conditions and the
purpose of the Restructuring Act will require that the Parent Company's new
business opportunities are sufficiently developed so as to provide more tangible
prospects for future viable business operations. As part of the fulfillment of
the special condition (c), the Parent Company announced that it had started
preparations for the share issue, whereby the holders of unsecured restructuring
debts as defined in the restructuring programme would be offered an opportunity
to convert the full amount of their unsecured restructuring debt into shares of
the Company.
On 4 October 2016, Talvivaara announced that it had signed an agreement for the
acquisition of technology that aims to enhance the energy efficiency of the
electric arc steel making process. The object of sale consists of the rights to
the control system on which the technology is based and the existing test use
equipment utilizing the technology. The assets would be acquired by a wholly-
owned subsidiary of the Parent Company, FATB Oy. The purchase price of the
technology is five percent of the EBIT generated by the technology in the
future. However, the Parent Company has the right to terminate the EBIT based
earn-out arrangement by paying a lump sum of EUR 2 million to the seller of the
technology. In addition, the Parent Company agreed to pay compensation of EUR
160,000 for the equipment reflecting their reasonable development and
manufacturing costs. The Parent Company further noted that the closing of the
agreement remained conditional, among others, on the approval of Talvivaara's
Board of Directors.
On 24 November 2016, the Parent Company announced that the Board of Directors of
Talvivaara had decided on a directed conversion issue in accordance with the
draft restructuring programme. Based on the decision, the Parent Company offered
up to 4,000,000,000 new shares for subscription, in deviation of the
shareholders' pre-emptive subscription right, to all holders of unsecured
restructuring debt in accordance with the Parent Company's draft restructuring
programme, dated 10 April 2015. The subscription price per new share was set to
EUR 0.1144, to be paid in its entirety by setting off the debt receivable of the
creditor from the Parent Company against the subscription price of the new
shares. The conversion issue will, when completed, reduce the Parent Company's
debt but will not raise any new proceeds for the Parent Company. The
subscription period for the new shares commenced on 28 November 2016 at 10:00
a.m. (Finnish time).
On 21 December 2016, the Parent Company announced that it had decided to extend
the subscription period of the Share Issue to expire on 28 December 2016 at
4:00 p.m. (Finnish time). Talvivaara further announced that it had supplemented
its offering circular dated 25 November 2016 and that the Finnish Financial
Supervisory Authority had on 21 December 2016 approved the supplement. As result
of the extension, all of the new shares were (i) registered in the trade
register maintained by the Finnish Patent and Registration Office on 4 January
2017; (ii) issued as book-entry securities in the book-entry system maintained
by Euroclear Finland on 4 January 2017; and (iii) listed on the official list of
the Helsinki Stock Exchange on 5 January 2017.
For more information on the results of the conversion issue, see section 'Events
after the review period'.
To date, the Parent Company continues to identify and assess new business
opportunities and to develop its business outside the Sotkamo mine.
Financial review
Financial result
The operating profit for the review period was EUR 214 million (2015: EUR (0.2)
million). Revenues of the Parent Company consist of income generated from
equipment leases as well as laboratory and consultancy services rendered to
Terrafame, capital gains crystallised from the sale of the Parent Company's
mining-related assets to Terrafame (EUR 11 million), and of the reversal of the
EUR 203.4 million provision, which is reported as an adjustment to the other
operating expenses. The costs are mainly personnel and other operating expenses.
Finance income for the review period was EUR 0.02 million (2015: EUR 0.01
million) and consisted mainly of interest on deposits and receivables. Finance
costs of EUR (15.3) million (2015: EUR (25.8) million) resulted mainly from
accrued interest and related financing expenses accrued on borrowings.
The profit for the accounting period amounted to EUR 198.5 million (2015: EUR
(26.0) million). Earnings per share were EUR 0.09 (2015: EUR (0.01)).
Liquidity
As at 31 December 2016, the Group's cash and cash equivalents amounted to EUR
3.8 million (EUR 4.7 million as at 31 December 2015). Following the sale of
mining-related assets to Terrafame Oy on 30 June 2016, Talvivaara has not had
any income generating business activities, but has utilised its cash reserves to
identify and develop new business opportunities.
Financing
During the review period, the Group has financed its operations from operating
cash flow and its cash reserves.
Equity
Following Talvivaara Sotkamo's bankruptcy in 2014, the Parent Company fully
wrote off its receivables from, and the shares held in, Talvivaara Sotkamo. As a
result, Talvivaara forfeited its equity, which was acknowledged by the Company's
Board and notified to the trade register. Talvivaara had already recognised the
weakening of its financial position in November 2013 and took measures to
mitigate this by applying for corporate reorganisation.
Provisions and other items recognised based on restructuring programme
In the Parent Company's 2014 Financial Statements, Talvivaara recorded a
provision of EUR 203.4 million for the potential termination sum guarantee
towards Nyrstar. The guarantee concerned the consequences of a premature
termination of the Streaming Agreement between Nyrstar and Talvivaara Sotkamo,
which as of 1 April 2014 was guaranteed by the Parent Company. The Parent
Company provided the full amount as a provision in 2014 and decided to leave the
provision on the balance sheet in the 2015 Financial Statements. As a result of
the transactions concluded with Terrafame Oy on 30 June 2016, the guarantee
liability was finally settled and confirmed terminated. Consequently, the
provision of EUR 203.4 million was reversed from the Company's balance sheet as
of 30 June 2016.
In addition, the Parent Company has issued a floating charge security for the
loans drawn from Finnvera by Talvivaara Sotkamo, amounting in aggregate to EUR
58.7 million, including accrued interest. The aggregate amount consists of two
parts: EUR 50.7 million the Parent Company has guaranteed as its own debt, and
EUR 8.0 million the Parent Company has secured with a floating charge security
issued as a third-party-security. In the Administrator's final draft
restructuring programme, the EUR 8.0 million liability of the Parent Company
under the floating charge security to Finnvera has been revalued to EUR 3.4
million. This is a liability referred to in section 3(3) of the Restructuring of
Enterprises Act, and it is subject to the same rules as the secured debt of the
Company. As Finnvera's EUR 8.0 million claim is not the Parent Company's own
debt, it has not been taken into account as restructuring debt. However, this
liability has been taken into account in the calculation of the amount of
secured and business mortgage debt, and payments will be made on it in the same
manner as on the Parent Company's debts secured by collateral and business
mortgages. However, due to the application of the non-going concern principle,
the Parent Company has also recognised the full EUR 8.0 million as a liability
on the balance sheet. Upon completion of the restructuring proceedings, the part
of the Finnvera loans taken into account as secured debt (EUR 3.4 million) would
be finally and fully discharged.
Off-balance sheet and contingent liabilities
Talvivaara Sotkamo largely met its environmental bond requirement under the
environmental permit through guarantee insurance provided by Atradius Credit
Insurance NV ("Atradius"). As at 31 December 2015, the coverage amounted to EUR
31.9 million. In the event restoration of the mine's waste areas (gypsum ponds,
heap areas) would have taken place without Talvivaara Sotkamo carrying the cost,
the expenses would have initially been covered by Atradius and eventually
Atradius would have claimed the cost back from the Parent Company, which has
given counter-indemnity for such costs to Atradius. However, as a result of
Terrafame Oy replacing the guarantee insurance placed by Talvivaara Sotkamo with
a new environmental bond on 21 January 2016, Atradius notified the Parent
Company that the original guarantee insurance and the corresponding counter-
indemnity were terminated on 21 January 2016 and that the beneficiaries, Kainuun
ELY-keskus or Atradius, have no claims against Talvivaara Sotkamo or the Parent
Company on the basis of the guarantee insurance or the counter-indemnity issued
by the Parent Company. Therefore, the full amount of the liability under the
counter-indemnity given by the Parent Company has been removed from the Parent
Company's restructuring debts, and no payment will be made on it under the
authorised payment schedule.
Subject to the confirmation by the Espoo District Court of the Parent Company's
corporate reorganization proceedings as requested by the Administrator, the
Company will pay, within two years from the date of confirmation, one percent of
the aggregate amount of the Parent Company's unsecured restructuring debts not
converted into equity, and a total of EUR 7.5 million for the debts secured with
the business mortgage issued by the Parent Company.
Assets
On the statement of financial position as at 31 December 2016, property, plant
and equipment totalled EUR 0.02 million (31 December 2015: EUR 4.7 million).
Intangible assets totalled EUR 0 (31 December 2015: EUR 0.1 million). Due to the
applied non-going concern reporting basis, the Parent Company has written down
the value of its shares in Fennovoima.
Corporate reorganisation
The Parent Company and Talvivaara Sotkamo applied for 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 Parent Company on 29 November
2013 and in respect of Talvivaara Sotkamo on 17 December 2013. The District
Court of Espoo appointed Mr. Pekka Jaatinen, Attorney-at-Law, from Castrèn &
Snellman Attorneys to act as the Administrator in respect of the corporate
reorganisation of both the Parent Company and Talvivaara Sotkamo. In
reorganisation proceedings governed by the Finnish Restructuring of Enterprises
Act (47/1993, as amended), both the business operations and the debts of a
company may be reorganised and restructured. As a result of such reorganisation,
a company can either continue its operations or, if the reorganisation fails,
initiate bankruptcy proceedings.
Following the confirmation request of Talvivaara's final debt restructuring
programme filed with the District Court of Espoo on 6 March 2017 by the
Administrator, the Parent Company is focusing on developing its business
opportunities and on securing financing for the due discharge of the Parent
Company's liabilities falling due in the future.
Reporting basis
Talvivaara's financial statements for 2016 have not been prepared on a going
concern basis. The basis for preparation is that the operations of the Parent
Company may end in near future. This results from material uncertainties that
cast significant doubt upon the Parent Company's ability to realise its assets
and discharge its liabilities in the normal course of business. There is also
lack of visibility on the Parent Company's operational environment twelve months
beyond the date of reporting.
Talvivaara's ability to revise its reporting basis and to regain its status as a
going concern is to a paramount extent dependent on the successful completion of
the Parent Company's corporate reorganisation proceedings, which requires that
Talvivaara succeeds in completing an arrangement that will secure the necessary
cash flow for the Parent Company to discharge all of its liabilities and the
continuance of the Parent Company's viable business.
Business development projects
The Parent Company'a strategic aim is to establish a sustainable business or
businesses that match the expertise inherent in the Parent Company as well as
providing the prospect of early cash flow. The new business opportunities
investigated by the Parent Company have not been limited to the mining industry,
but also include projects in the recycling and energy-saving sectors, among
others. For further information, see section 'Events after the review period'.
Talvivaara acquired in 2011-2012 an approximately 60MW capacity share in the
Fennovoima nuclear project in Finland. Due to the Parent Company's ongoing
corporate reorganisation proceedings, Talvivaara is currently not in a position
to make further investments into the project and has therefore not been able to
commit to further funding of the project.
Legal proceedings
Investigation on Talvivaara's disclosure practices
In April 2015, Talvivaara confirmed that a number of current and former members
of Talvivaara's management have been heard in connection with an investigation
relating to the Parent Company's disclosure practices. On 16 May 2016 the Parent
Company was informed that the consideration of charges had been completed and
that the prosecutor had decided to bring charges for security markets
information offence against CEO Pekka Perä, former CEO Harri Natunen and former
CFO and Deputy CEO Saila Miettinen-Lähde. The prosecutor also requested a
corporate fine of EUR 500,000 be imposed on Talvivaara. Should any corporate
fine be imposed on the Parent Company in the final and binding decision such
fine would be considered unsecured restructuring debt and would be cut and paid
out in accordance with the restructuring programme of the Parent Company.
The main hearing in the case commenced in the District Court of Helsinki on 14
December 2016. The Parent Company has already in the past gone through the
applied disclosure practices extensively and in great detail with the Financial
Supervisory Authority and the Parent Company's view is that no crime has been
committed.
Alleged misuse of insider information
The Parent Company was notified on 20 October 2015 that charges have been
brought against a member of its Executive Committee in the Helsinki District
Court on a case concerning alleged misuse of insider information. The main
hearing in the case commenced in the District Court of Helsinki on 13 December
2016.
The Parent Company is not a party to the case. In the Parent Company's view, the
charges have no impact on the Parent Company, its financial position or on the
employment of the member of the Executive Committee in the Company.
Gypsum pond leakages and discharges into water ways
On 13 May 2016 the District Court of Kainuu gave its ruling on the case
concerning the gypsum pond leakages of the Sotkamo mine in November 2012 and
April 2013 and the sodium, sulphate and manganese discharges that exceeded the
anticipated amounts stated in the original environmental permit application of
the Sotkamo mine. Originally the charges were brought against four members of
Talvivaara's management, including CEO Pekka Perä and former CEO Harri Natunen.
The charges concern aggravated impairment of the environment. Harri Natunen has
not been employed by the Company since the autumn of 2015.
The case concerning the discharge of raffinate from the metals recovery plant
and dilute secondary heap solutions into the open pit during the period of 19
December 2013 - 31 January 2014 was handled together with the above mentioned
case. The charges were brought against CEO Pekka Perä for impairment of the
environment.
The District Court of Kainuu dismissed the charge concerning aggravated
impairment of the environment and moderated the type of the crime to impairment
of the environment. Penalties in the form of a fine were imposed on Pekka Perä,
Harri Natunen and the former chief operations officer of the mine, who acts as a
member of the Executive Committee of the Company. The prosecutor's demands
concerning a suspended prison sentence and compensation for the benefit obtained
from the crime were dismissed in relation to the private defendants. All charges
were dismissed in relation to the fourth defendant. The charges concerning the
discharge of raffinate from the metals recovery plant and dilute secondary heap
solutions into the open pit made against Pekka Perä were dismissed.
Talvivaara has not been a party to the court case.
The decision is not yet final and binding. The three defendants and the
prosecutor have appealed the case to the Court of Appeal.
Risk management and key risks
Talvivaara's near-term risk factors include particularly such risks that relate
to the financing and sufficiency of funds to meet its actual and potential
liabilities:
If an adequate overall financial solution for the continuance of Talvivaara's
business operations is not found, Talvivaara's restructuring programme may not
be completed and stakeholders could lose their entire investment in the Parent
Company.
The completion of the restructuring programme of Talvivaara is conditional,
among other things, on Talvivaara succeeding in completing an arrangement that
will secure the necessary cash flow for the Parent Company to discharge all of
its liabilities and restructuring debts and for continuing the development of
the Parent Company's business opportunities. Although the request for
confirmation of Talvivaara's final draft restructuring programme by the
Administrator filed on 6 March 2017 was a pivotal step in the Parent Company's
path towards a solvent operating status, the request will still need to be
approved by the District Court of Espoo. Moreover, the Parent Company does not
currently have any income generating business and is financing its operations
from its cash reserves. Therefore, there is, as of the date of the Group's
Financial Statements 20 March 2017, no certainty as to whether the District
Court of Espoo will approve the Administrator's confirmation request or whether
the Parent Company can timely secure the necessary cash flow and/or financing
for its new businesses and for discharging all of its liabilities. If the
approval of the District Court of Espoo is not obtained, or the necessary cash
flow and/or financing is not secured, the Parent Company may have to file for
bankruptcy and, as a result, the shareholders and creditors of the Parent
Company could lose their entire investment in the Parent Company.
If the corporate reorganisation proceedings of Talvivaara are not successful,
stakeholders could lose their entire investment in the Parent Company
Although the Board of Directors believes that a corporate reorganisation is a
viable option for Talvivaara, there can be no assurance that the proposed
restructuring programme of the Parent Company will ultimately be successfully
completed. The corporate reorganisation process can fail for a number of
reasons, including due to an insufficiency of funds to implement or complete the
restructuring programme, changes in circumstances affecting the financial
viability of Talvivaara, or insufficient income or cash reserves. If the
corporate reorganisation fails for these or any other reasons, it could result
in the bankruptcy of the Parent Company. As a result, shareholders and creditors
could lose their entire investment in the Parent Company.
If Talvivaara fails to transform its business opportunities into viable
businesses, stakeholders could lose their entire investment in the Parent
Company
Talvivaara is currently investigating and assessing a number of new business
opportunities in order to establish their viability as profit and cash flow
generating businesses. Despite the Parent Company's careful and thorough
analysis of the business concepts and their financial models as well as inherent
legal and commercial risks, there is, as of the date of the Group's Financial
Statements 20 March 2017, no certainty as to whether the Parent Company will
ultimately be successful in making its new businesses fundable, profitable and
cash flow generating. If Talvivaara's efforts are unsuccessful, the Parent
Company may have to file for bankruptcy and, as a result, the shareholders and
creditors could lose their entire investment in the Parent Company.
Personnel
Headcount and remuneration
Talvivaara's personnel comprises an expert organisation, the core competences of
which include, for example, production processes, procurement, environmental
safety, risk management and communications. The salaries of Talvivaara's
personnel are based on industry-wide collective agreements. The total
compensation of the key individuals has traditionally consisted of a base salary
and short and long term incentive schemes based on annual bonuses, stock options
and other share-based incentive schemes. However, due to exceptional
circumstances surrounding the Parent Company there are currently no short term
or long term incentive schemes in place.
As a result of the sale of assets concluded on 30 June 2016, Talvivaara's
headcount decreased substantially. Following the acquisition of the energy
saving technology in October 2016, Talvivaara has recruited several IT
specialists and had 20 employees at the end of the review period on 31 December
2016 (2015: 39). 75 % (2015: 59%) of Talvivaara's employees were men and 25 %
(2015: 41%) were women. The average age of the Company's employees was 46.9
years (2015: 40.2 years).
Corporate governance statement
Talvivaara issues its Corporate Governance Statement of 2016 and publishes it on
the Company's website at www.talvivaara.com on the week starting 3 April 2017.
The Corporate Governance Statement does not form part of the Board of Directors'
Report.
Resolutions of the Annual General Meeting
Talvivaara's Annual General Meeting was held on 15 June 2016 in Espoo, Finland.
All the resolutions proposed, as set out in the notice of the meeting, were duly
passed. The resolutions of the AGM included:
* that no dividend be paid for the financial year 2015;
* that the annual fee payable to the members of the Board for the term until
the close of the Annual General Meeting in 2017 be as follows: Chairman of
the Board of Directors EUR 84,000/year and other Non-executive Directors:
EUR 48,000/year. No separate meeting fees are paid for the Board or the
Committee work. The remuneration of the Executive Directors is included in
their base salary, and it is not paid out separately;
* that the number of Board members be four (4) and that Mr. Tapani Järvinen,
Mr. Pekka Perä, Mr. Stuart Murray and Ms. Solveig Törnroos-Huhtamäki were
re-elected;
* that the auditor be reimbursed according to the approved auditor's invoice
and authorised public accountants PricewaterhouseCoopers Oy be elected as
the Parent Company's auditor;
* that article 2§ of the Articles of Association of the Parent Company
concerning the line of business be amended in accordance with the proposal
by the Board of Directors. The line of business was made more versatile to
cover also the development of new types of businesses. The amended article
2§ of the Articles of Association concerning the line of business reads as
follows:
"The line of business of the Company is to engage in ore exploration,
exploitation, excavation and other mining activities and in metals, machine,
chemical and construction industries and any business activities supporting
them. The Company may also engage in the business operations based on know-how
acquired in aforementioned sectors or related to or compatible with them. The
Company may operate either directly or through subsidiaries, associated
companies or joint ventures."
At its constituent meeting on 15 June 2016, the Board of Directors re-elected
Mr. Tapani Järvinen as the chairman of the Board.
Shares and shareholders
By the end of 2015 Talvivaara received conversion notices pursuant to which the
bonds amounting in aggregate to EUR 21,100,000 were to be converted to a total
of 9,336,276 new Talvivaara shares. These new Talvivaara shares were registered
in the Trade Register on 14 January 2016.
The number of shares issued and outstanding and registered on the Euroclear
Shareholder Register as of 31 December 2016 was 2,108,154,152.
As at 31 December 2016, the shareholders who held more than 5% of the shares and
votes of Talvivaara were Solidium Oy (15.2%) and Mr. Pekka Perä (5.9%).
As at 31 December 2016 the shares held in treasury by the Parent Company
amounted to in aggregate 192,883,000 (9.2% of the shares in the Parent Company).
The shares held in treasury by the Parent Company do not carry any voting
rights.
Share based incentive plans
As at 31 December 2016, the Parent Company has no share based incentive schemes
in place.
Events after the review period
Closing of the conversion issue
On 4 January 2017, the Parent Company announced the results of the conversion
issue, stating that the creditors of the Parent Company had subscribed for a
total of 2,081,653,010 new shares in the Parent Company. Consequently, the
Parent Company's debt was reduced by a total of EUR 238,141,136.72 and the total
number of shares in the Company increased to 4,189,807,162 shares.
All the new shares issued in the conversion issue were registered in the trade
register and issued as book-entry securities in the book-entry system by 5
January 2017. The shares were listed on the official list of the Helsinki Stock
Exchange by 9 January 2017.
Closing of the acquisition of the energy saving technology
Talvivaara announced on 31 January 2017 that the Board of Directors had approved
the closing of the acquisition of the energy saving technology business. Energy
consumption is one of the largest components of operational expenditure for
electric arc furnaces used in the steel making process, and reducing energy
costs by just a few percent can materially improve profitability of a steel mill
utilising electric arc furnaces. The object of sale consisted of the rights to
the system on which the technology is based and the existing equipment utilizing
the technology. The assets have been acquired by a wholly-owned subsidiary of
the Company, FATB Oy.
Talvivaara has continued the development and testing of the technology and has
also hired the necessary technical staff to refine the technology and to ready
it for deployment in an industrial environment. The aim is to commercialize the
technology during year 2017.
Update on additional business opportunities
In its announcement of 31 January 2017, the Parent Company also explained its
strategic aim of establishing a sustainable business or businesses that match
the expertise inherent in the Parent Company as well as providing the prospect
of early cash flow. The new business opportunities investigated by the Parent
Company have not been limited to the mining industry, but also include projects
in the recycling and energy-saving sectors, among others. In addition to the
acquired energy saving technology business, the Parent Company has initiated a
commercialization project, based on its chemical engineering expertise, focused
on developing more efficient use of nutrients and energy production from
renewable raw materials related to livestock farming. Talvivaara is studying
possibilities to create processing units to enable the economic extraction of
valuable content as commercial products from manure streams while at the same
time facilitating the management of the nutrient streams in a way that benefits
the livestock farmers. The Parent Company's target is to convert manure to
energy fraction and high quality fertilizers and to purify the liquid fraction
to a level that allows safe discharge into the environment, and to recover the
nutrients as useful fertilizers.
The Parent Company is also studying and further developing a number of other
opportunities within the so-called "circular economy" in areas related to
metallurgy, chemical processing and construction that could meet its investment
requirements in the short term.
Approval by the EGM of the Board share issue authorization
On 2 February 2017, the extraordinary general meeting of shareholders of the
Parent Company approved the proposal by the Board of Directors to authorise the
Board of Directors to resolve on a share issue for consideration pursuant to the
shareholders' pre-emptive subscription right to raise the funds needed to pay
the remaining restructuring debts of the Company and/or to finance the
development of the Parent Company's new business opportunities. Based on the
authorization, the number of shares which can be issued through one or several
share issues shall not exceed 40,000,000,000 shares in aggregate. The Board of
Directors may decide to issue new shares and/or the Parent Company's own shares
held in treasury by the Parent Company. The Board of Directors has the right to
decide upon the offering to parties determined by the Board of Directors of any
shares that may remain unsubscribed for pursuant to the shareholders' pre-
emptive subscription right. Should the total number of the shares in the Parent
Company afterwards decrease as a result of a reverse share split, the maximum
number of the shares to be issued based on the authorisation shall decrease pro
rata. The Board of Directors is authorised to determine the subscription price
for the new shares and the other terms and conditions of the share issue. The
authorisation of the Board of Directors to issue shares is valid until 30 June
2018.
In Talvivaara's view, the Board authorization fulfilled the special condition
(c), which had been set as one of the preconditions for the confirmation and
entry into force of the Parent Company's Draft Restructuring Programme.
Corporate reorganisation proceedings
On 6 March 2017, Talvivaara announced that the Administrator of the Parent
Company's corporate reorganisation proceedings has filed a request for
confirmation of the Restructuring Programme of Talvivaara to the District Court
of Espoo. According to the Administrator, all the special conditions set for the
confirmation and entry into force of the Restructuring Programme have been
fulfilled. The Company anticipates the District Court of Espoo to give its
ruling on the request within the next few weeks.
Insider dealing charges brought against a member of the Company's Executive
Committee
Talvivaara announced on 9 March 2017 that charges have been brought against a
member of its Executive Committee on a case concerning alleged misuse of insider
information. The Company is not a party to the case, but the Company's
disclosure practices in 2012 - 2013 have been heard in the Helsinki District
Court in consequence of the charges brought by the prosecutor in May 2016. To
the Company's understanding this insider dealing charge concerns the same time
period. The main hearing phase of the disclosure case has ended, but no decision
in the case has been given yet. The Company's view is that the brought charges
have no impact on the Company or its financial position nor do they give any
reason to reassess the composition of the Company's Executive Committee.
Short-term outlook
The operational outlook for Talvivaara is greatly dependent on the successful
completion of the Parent Company's corporate reorganisation proceedings within
the prescribed time frame, and the materialisation and further development of
the Parent Company's new business opportunities currently under contemplation.
In the view of the Board of Directors, transforming the selected business
opportunities into income generating businesses will require further financing.
Whilst the Administrator's final draft restructuring programme gives the Parent
Company reasonably sufficient time to complete the reorganization proceedings,
there is no certainty that the Company will be successfull in developing its new
business opportunities and, ultimately, in completing the corporate
reorganisation proceedings through due payments.
Board of Director's proposal for profit distribution
The Board of Directors is proposing to the Annual General Meeting that no
dividend is declared in respect of the year 2016 and that the profit of the
financial period is entered into the Parent Company's profit/loss account on the
balance sheet.
Talvivaara Mining Company Plc
Board of Directors
BALANCE SHEET
Group Parent Company
As at As at As at
(All amounts in EUR) 31 Dec 16 31 Dec 15 31 Dec 16 31 Dec 15
------------------------------------------------------------
ASSETS
Non-current assets
Property, plant and
equipment 18,899 - 18,899 4,692,782
Intangible assets - - - 94,547
Other receivables 26,822 - 26,822 27,640
Investments in group
companies - - 13,500 -
----------------------------------------------------------
Total non-current
assets 45,721 - 59,221 4,814,970
Current assets
Trade receivables - - - 37,850
Other receivables 268,890 - 268,756 188,138
Cash and cash
equivalents 3,776,623 - 3,765,827 4,662,572
----------------------------------------------------------
Total Current assets 4,045,513 - 4,034,583 4,888,559
TOTAL ASSETS 4,091,234 - 4,093,804 9,703,529
----------------------------------------------------------
EQUITY AND
LIABILITIES
Share capital 80,000 - 80,000 80,000
Share premium 8,085,842 - 8,085,842 8,085,842
Other reserves 797,348,200 - 797,348,200 797,348,200
Retained deficit (1,337,240,512) - (1,337,237,942) (1,535,766,741)
----------------------------------------------------------
Total equity (531,726,470) - (531,723,900) (730,252,700)
Current liabilities
Provisions - - - 203,444,456
Borrowings 465,078,396 - 465,078,396 477,845,205
Trade payables 2,219,681 - 2,219,681 2,723,003
Other payables 68,519,627 - 68,519,627 55,943,564
----------------------------------------------------------
Total liabilities 535,817,704 - 535,817,704 739,956,228
TOTAL EQUITY AND
LIABILITIES 4,091,234 - 4,093,804 9,703,529
----------------------------------------------------------
INCOME STATEMENT
Group Parent Company
As at As at As at
(All amounts in EUR) 31 Dec 16 31 Dec 15 31 Dec 16 31 Dec 15
-------------------------------------------------
Other operating income 14,026,894 - 14,026,894 6,702,480
Materials and services (180,219) - (180,219) (257,536)
Personnel expenses (2,435,356) - (2,435,356) (3,807,345)
Depreciation and amortisation (302,017) - (302,017) (971,024)
Impairment charges on
intangible assets (121,272) - (121,272) -
Impairment charges on
investments - - - 421,333
Other operating expenses 202,779,457 - 202,782,027 (2,267,625)
Operating profit/loss 213,767,487 - 213,770,057 (179,717)
Finance income 17,069 - 17,069 12,841
Finance cost (15,258,326) - (15,258,326) (25,842,689)
-------------------------------------------------
Finance cost (net) (15,241,257) - (15,241,257) (25,829,848)
Profit/Loss before financial
statement transfers and taxes 198,526,229 - 198,528,799 (26,009,565)
Income tax - - - -
-------------------------------------------------
PROFIT/LOSS FOR THE
FINANCIAL PERIOD 198,526,229 - 198,528,799 (26,009,565)
-------------------------------------------------
Profit/Loss attributable to the
owners of the Company,
(€/share) 31 Dec 16 31 Dec 15 31 Dec 16 31 Dec 15
-------------------------------------------------
Diluted and undiluted 0.09 - 0.09 (0.01)
STATEMENT OF CASHFLOWS
Group Parent Company
As at As at As at
(all amounts in EUR) 31 Dec 16 31 Dec 15 31 Dec 16 31 Dec 15
---------------------------------------------------
Cash flows from operating
activities -
Profit/Loss for the period 198,526,229 - 198,528,799 (26,009,565)
Adjustments for
Depreciation and amortisation 302,017 - 302,017 971,024
Other non-cash income and
expenses (216,944,740) - (216,948,106) 215,257
Impairment charges on
intangible assets 121,272 - 121,272 -
Impairment charges on
investments - - - (421,333)
Interest income (17,069) - (17,069) (12,841)
Interest expenses 15,258,326 - 15,258,326 25,842,689
---------------------------------------------------
Cash flow before change in
working capital (2,753,965) - (2,754,761) 585,230
Change in working capital
Decrease(+)/increase(-) in
trade and other receivables (42,084) - (42,084) 98,898
Decrease(-)/increase(+) in
trade and other payables 614,521 - 614,521 (1,287,347)
---------------------------------------------------
Change in working capital 572,436 - 572,436 (1,188,449)
Net cash used in operating
activities
before financing activities
and taxes (2,181,528) - (2,182,324) (603,219)
Interest and other finance
cost paid (119,489) - (119,489) (91,801)
Interest and other finance
income 17,069 - 17,069 11,211
---------------------------------------------------
Net cash generated (used) in
operating activities (2,283,949) - (2,284,745) (683,809)
Cash flows from investing
activities
Acquisition of subsidiary,
net of cash acquired (2,000) - (12,000) -
Proceeds from sale of
property, plant
and equipment 1,400,000 - 1,400,000 -
---------------------------------------------------
Net cash generated (used) in
investing activities 1,398,000 - 1,388,000 (0)
Cash flows from financing
activities
---------------------------------------------------
Net cash generated from
financing activities 0 - 0 0
Net (decrease)/increase in
cash and
bank overdrafts (885,949) - (896,745) (683,809)
Cash and bank overdrafts at
beginning of the year 4,662,572 - 4,662,572 5,346,381
Cash and bank overdrafts at
end of the period 3,776,623 - 3,765,827 4,662,572
STATEMENT OF CHANGES IN EQUITY
Group
(all amounts in Share Share Other
EUR) capital premium reserves Retained deficit Total
-------------------------------------------------------------
1 January 2016 80,000 8,085,842 771,648,200 (1,509,757,176) (729,943,134)
-------------------------------------------------------------
Profit (loss) for
the period - - - 198,526,229 198,526,229
-------------------------------------------------------------
31 December 2016 80,000 8,085,842 797,348,200 (1,337,240,512) (531,726,470)
-------------------------------------------------------------
Parent Company
(all amounts in Share Share Other
EUR) capital premium reserves Retained deficit Total
-------------------------------------------------------------
1 January 2015 80,000 8,085,842 771,648,200 (1,509,757,176) (729,943,134)
-------------------------------------------------------------
Conversion of
convertible bonds - - 25,700,000 - 25,700,000
Profit (loss) for
the period - - - (26,009,565) (26,009,565)
-------------------------------------------------------------
1 January 2016 80,000 8,085,842 797,348,200 (1,535,766,741) (730,252,700)
-------------------------------------------------------------
Profit (loss) for
the period - - - 198,528,799 198,528,799
-------------------------------------------------------------
31 December 2016 80,000 8,085,842 797,348,200 (1,337,237,942) (531,723,900)
-------------------------------------------------------------
NOTES
1. Basis of presentation and non-going concern
These Financial Statements of the Group and the Parent Company are prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union taking into account the corporate reorganisation proceedings
that commenced in respect of the Parent Company on 29 November 2013. In
addition, the Group has taken into account IAS 1.25 and IAS 1.26 requirements
regarding the disclosure under the non-going concern basis. Talvivaara's and the
Group's Financial Statements for the period ended 31 December 2016 have not been
prepared on a going concern basis. The basis of preparation is that operations
may end in near future.
The chosen reporting basis results from the existence of material uncertainty
that casts significant doubt upon the Parent Company's ability to realise its
assets and discharge its liabilities in the normal course of business and from
the lack of visibility on the Parent Company's operational environment twelve
months beyond the date of reporting. The requisite adjustments resulting from
the chosen reporting basis have, where applicable, been made in the 2016
Financial Statements to the carrying amounts of the Group's assets and
liabilities, but no reserve has been made in the Group's balance sheet for the
costs relating to winding down of the operations.
The completion of the restructuring programme of Talvivaara is conditional,
among other things, on Talvivaara succeeding in completing an arrangement that
will secure the necessary cash flow for the Parent Company to discharge all of
its liabilities and restructuring debts and for continuing the development of
the Parent Company's business opportunities. Although the request for
confirmation of Talvivaara's final draft restructuring programme by the
Administrator filed on 6 March 2017 was a pivotal step in the Parent Company's
path towards a solvent operating status, the request will still need to be
approved by the District Court of Espoo. Moreover, the Parent Company does not
currently have any income generating business and is financing its operations
from its cash reserves. Therefore, there is, as of the date of the Group's
Financial Statements 20 March 2017, no certainty as to whether the District
Court of Espoo will approve the Administrator's confirmation request or whether
the Parent Company can timely secure the necessary cash flow and/or financing
for its new businesses and for discharging all of its liabilities. If the
approval of the District Court of Espoo is not obtained, or the necessary cash
flow and/or financing is not secured, the Parent Company may have to file for
bankruptcy.
Until 30 June 2016 the Parent Company financed its day-to-day operations by
providing administrative and technical services and the lease of machinery and
equipment critical to Terrafame. These contractual arrangements helped the
Parent Company to discharge all of its new liabilities as and when they fell
due. After the agreement made with Terrafame on 30 June 2016, the Parent Company
continues to identify and assess new business opportunities and to develop these
potential businesses.
Talvivaara's ability to revise its reporting basis and to regain its status as a
going concern is dependent, among other things, on the successful completion of
the Parent Company's corporate reorganisation proceedings, which requires that:
i. Talvivaara succeeds in completing an arrangement that will secure the
necessary cash flow for the Parent Company to discharge all of its
liabilities and the continuance of the Parent Company's viable business,
and
ii. the District Court of Espoo authorizes the execution of the Parent
Company's debt restructuring in accordance with the Administrator's request
for confirmation dated 6 March 2017.
2. Illustrative calculation of the Parent Company equity and liabilities, if the
restructuring programme is confirmed
According to Talvivaara's draft restructuring programme, the holders of the
unsecured restructuring debt were given the right to convert their receivables
to new shares of the Company. The unsecured restructuring debt of those
creditors who decide not to exercise their conversion right would be reduced by
99%. The remaining 1% of the unsecured restructuring debt would be paid in one
instalment. As announced by the Parent Company on 4 January 2017, holders of EUR
238,141,136.72 of unsecured restructuring debt elected to convert their
receivables, resulting in the issue of 2,081,653,010 new shares in the Parent
Company.
The following table illustrates the Company's capital structure based on actual
book values as at 31 December 2016, adjusted for the conversion of unsecured
restructuring debt to new shares in the Parent Company that occurred on 4
January as if the conversion had taken place as at 31 December 2016. In
addition, the adjusted capital structure assumes elimination of the accumulated
accrued interest since the beginning of the restructuring proceedings amounting
to EUR 74.1 million as the obligation to pay such interest will cease either
upon the confirmation of the draft restructuring programme or, to the extent
unsecured restructuring debts have been converted into shares, upon completion
of the conversion.
EUR 31-Dec-16
2)
Elimination 3)
1) Conversion of the Elimination
of unsecured payable of the
restructuring restructuring accrued
Actual debt debt expenses Adjusted
-------------------------------------------------------------------
Equity (531,723,900) 238,141,137 208,698,478 78,797,598 (6,086,687)
Borrowings:
Restructuring
loan
capital 427,500,000 (233,948,518) (187,361,440) 6,190,042
Restructuring
loan
interest 16,510,880 (16,510,880) -
Accrued
interest on
restructuring
loans after
commencement
of
restructuring
proceedings 12,822,068 (12,822,068) -
Other
borrowings
during
procedure 8,245,447 (4,847,850) 3,397,597
---------------
Total
borrowings 465,078,395
Other
interests on
the
restructuring
debt 6,558,933 (3,828,051) (2,730,882) -
Other accrued
interests
of the
restructuring
debt since
the beginning
of the
restructuring
proceedings 61,127,680 (61,127,680) -
Trade and
other
restructuring
payables 2,480,271 (364,568) (2,095,277) 20,426
Other
payables
during
procedure 572,426 572,426
-------------------------------------------------------------------
Total equity
and
liabilities 4,093,804 - - - 4,093,804
-------------------------------------------------------------------
The calculation is based on the amount of unsecured restructuring debt
(totalling EUR 238.1 million) that was converted into new shares of the Parent
Company with a subscription price of EUR 0.1144 per share on 4 January 2017.
Following the conversion of the unsecured restructuring debt, the equity
increased by the amount of the unsecured restructuring debt converted of EUR
238.1 million.
The Parent Company has accrued interest expenses of EUR 74.1 million to the
balance sheet since the beginning of the restructuring proceedings, despite the
fact that the payment obligation on unsecured restructuring debt and the
interest thereon ceased when the reorganisation proceedings were started. In the
event that the debt restructuring programme was confirmed, the accumulated
interest since the beginning of the reorganisation proceedings accrued on the
Parent Company's balance sheet would be reversed, since the fulfillment of the
restructuring plan will verify that the accumulation of interest ceased at the
time the restructuring proceedings were started.
Subject to the confirmation of the draft restructuring programme, the unsecured
restructuring debts that were not converted into new shares of the Parent
Company will be reduced by 99 percent based on the restructuring plan. The
remaining amount of unsecured restructuring loans of EUR 2.1 million remain as
short-term debt on the balance sheet. Following the reduction of the unsecured
restructuring debt, the Parent Company's equity will increase by the amount of
the reduction of the unsecured restructuring debt, EUR 213.3 million.
3. Property, Plant & Equipment
Group
Machinery and
EUR Buildings equipment Total
----------------------------------------
Gross carrying amount at 1 January 2016 11,899,045 20,100,975 32,000,020
Deductions (11,899,045) (20,060,775) (31,959,820)
----------------------------------------
Gross carrying amount at 31 December
2016 - 40,200 40,200
----------------------------------------
Accumulated depreciation and impairment
losses
at 1 January 2016 11,899,045 15,408,193 27,307,238
Depreciation for the year - 301,096 301,096
Deductions (11,899,045) (15,687,988) (27,587,033)
----------------------------------------
Accumulated depreciation and impairment
losses
at 31 December 2016 (0) 21,301 21,301
----------------------------------------
Carrying amount at 1 January 2016 0 4,692,782 4,692,782
----------------------------------------
Carrying amount at 31 December 2016 - 18,899 18,899
----------------------------------------
Parent Company
EUR Buildings Machinery and equipment Total
--------------------------------------------------
Gross carrying amount at 1
January 2015 11,899,045 19,837,595 31,736,640
Additions - 266,843 266,843
Deductions - (3,463) (3,463)
--------------------------------------------------
Gross carrying amount at 31
December 2015 11,899,045 20,100,975 32,000,020
--------------------------------------------------
Accumulated depreciation and
impairment
losses at 1 January 2015 11,899,045 14,826,837 26,725,882
Depreciation for the year - 581,356 581,356
Accumulated depreciation and
impairment losses
at 31 December 2015 11,899,045 15,408,193 27,307,238
--------------------------------------------------
Carrying amount at 1 January
2015 0 5,010,758 5,010,758
--------------------------------------------------
Carrying amount at 31 December
2015 0 4,692,782 4,692,782
--------------------------------------------------
Gross carrying amount at 1
January 2016 11,899,045 20,100,975 32,000,020
Deductions (11,899,045) (20,060,775) (31,959,820)
--------------------------------------------------
Gross carrying amount at 31
December 2016 - 40,200 40,200
--------------------------------------------------
Accumulated depreciation and
impairment
losses at 1 January 2016 11,899,045 15,408,193 27,307,238
Depreciation for the year - 301,096 301,096
Deductions (11,899,045) (15,687,988) (27,587,033)
--------------------------------------------------
Accumulated depreciation and
impairment
losses at 31 December 2016 (0) 21,301 21,301
--------------------------------------------------
Carrying amount at 1 January
2016 0 4,692,782 4,692,782
--------------------------------------------------
Carrying amount at 31 December
2016 - 18,899 18,899
--------------------------------------------------
Upon liquidation of Talvivaara Exploration Ltd in 2015, all its assets, rights
and liabilities transferred to the Parent Company. On 30 June 2016, Talvivaara
and Terrafame Oy signed agreements, in which the parties agreed on the sale of
Talvivaara's assets related to the Sotkamo mining operations and settlement of
Talvivaara's guarantee liabilities under the Streaming Holiday Agreement, with
the principal amount of approximately EUR 14 million (including interest up
until 30 June 2016). The assets sold include, among others, the lime plant
needed for the Sotkamo operations and the laboratory.
4. Borrowings
Group Parent Company
As at As at As at As at
EUR 31 Dec 16 31 Dec 15 31 Dec 16 31 Dec 15
----------------------------------------------
Restructuring loan capital 427,500,000 - 427,500,000 427,500,000
Restructuring loan interest 16,510,880 - 16,510,880 16,510,880
Accrued interest on restructuring
loans after commencement of
restructuring proceedings 12,822,068 - 12,822,068 12,822,068
Other borrowings during procedure 8,245,447 - 8,245,447 21,012,257
----------------------------------------------
465,078,395 - 465,078,395 477,845,205
----------------------------------------------
The following table specifies borrowings of the Company as at 31 December 2016
in accordance with the draft restructuring programme:
Group Parent Company
EUR As at As at
31 Dec 2016 31 Dec 2016
---------------------------
Secured restructuring debt and other liabilities to 7,448,870 7,448,870
be taken into account
Unsecured restructuring debt 444,563,991 444,563,991
Accumulated interest since the beginning of the 13,065,534 13,065,534
restructuring proceedings
---------------------------
Total borrowings 465,078,395 465,078,395
Due to the corporate restructuring proceedings, the Parent Company has
reclassified all of its borrowings as current and any unamortised transaction
costs have been expensed to the income statement in previous periods in
connection with the reclassification accreting the loan carrying amounts to the
nominal value. The fair value of the restructuring debt can not be assessed due
to the Parent Company's corporate restructuring proceedings, as the Parent
Company does not currently have a credit rating or proper access to debt
financing.
Restructuring loan capital
The restructuring loan capital includes the Revolving Credit Facility (EUR 70.0
million), the guarantee liability granted to Finnvera (EUR 50.7 million) and the
senior unsecured bonds due in 2017 (EUR 110.0 million). Of the restructuring
loan capital EUR 7.4 million is secured in accordance with the draft
restructuring programme and EUR 444.6 million is unsecured. The details related
to these debts can be found later in this Note.
According to the draft restructuring programme, the secured debt is entitled to
cover an amount corresponding to 50 percent of the assets of the debtor valued
at the beginning of the restructuring proceedings. The capital amount of the
debt secured with mortgage on the Parent Company's assets will not be cut in the
restructuring proceedings and the holder of such debt is not entitled to convert
the capital amount of the secured debt into new shares of the Parent Company.
Pursuant to the draft restructuring programme, the holders of unsecured debt
were given the right to convert their receivable to new shares in the Parent
Company at the conversion rate of EUR 0.1144 per share. To the extent the
unsecured creditors did not use their conversion right, the remaining unsecured
debt will be cut by 99 percent whilst 1 percent of the capital of the loan will
be repaid to the creditor.
Restructuring loan interest
Restructuring loan interests are unsecured debts and payable to the holders of
the restructuring debt in accordance with the draft restructuring programme.
Interest accumulated since the beginning of the restructuring proceedings
In addition to the Parent Company's restructuring debts and other liabilities to
be considered, the Parent Company's borrowings include EUR 13.0 million and
trade and other payables include EUR 61 million of accumulated interest, which
will fall due only in case the draft restructuring programme is not confirmed.
The Parent Company has accrued the interest on the balance sheet for all
restructuring debt based on the original loan terms described below despite the
fact that the accumulation of interest payment obligation on unsecured
restructuring debt ceased when the restructuring proceedings were started. In
case the restructuring plan is confirmed the interest accrued will not be paid,
since the fulfillment of the restructuring programme will verify that the
accumulation of interests ceased at the time the restructuring proceedings were
started.
Other short-term borrowings
Other borrowings as at 31 December 2015 included the guarantee liability to
Winttal Oy which was settled in connection with the asset deal concluded with
Terrafame Oy on 30 June 2016. Currently, the other short-term borrowings consist
mainly of the third-party security granted to Finnvera (EUR 8.2 million
including accrued interest).
Detailed information on debts under the draft restructuring programme based on
their original terms
Senior unsecured convertible bonds due 2015
In December 2010 the Parent Company completed an offering of EUR 225.0 million
of senior unsecured convertible bonds due 2015. The bonds are convertible into
98,617,935 million fully paid ordinary shares of the Parent Company. The
interest rate applied to the convertible bond is 4.00% and the yield to maturity
6.50%, reflecting a redemption price of 114.5% at maturity. The bonds are
convertible into Talvivaara's ordinary shares following the resolution by the
Extraordinary General Meeting of the Parent Company's shareholders in January
2011 to issue special rights in relation to the Bonds. To the extent the bonds
have not been converted into shares by 10 December 2015, Talvivaara was to repay
the debt in one instalment on maturity date 16 December 2015.
Senior unsecured bonds due 2017
In March 2012, Talvivaara issued a EUR 110 million senior unsecured bond. The 5-
year bond has an issue price of 100%, pays a coupon of 9.75% and is callable
after 3 years. The bond issue was sold to both Finnish and international
institutional and selected private investors. The bond was settled and the notes
were listed on NASDAQ OMX Helsinki in April 2012.
Revolving Credit Facility
On 30 September 2013, Talvivaara had an outstanding revolving credit facility of
EUR 100 million with a carrying amount of EUR 70 million (the "Revolving Credit
Facility"). With a waiver and amendment letter dated 30 October 2013, the terms
of the facility were amended such that the maximum margin was increased to
4.50% from the previous range of 1.75-3.00%, the undrawn amount of EUR 30
million was cancelled, and the liquidity covenant levels were adjusted to levels
relevant at the time. As at 31 December 2016 and 2015, the outstanding loan
amount was EUR 70 million.
Guarantee liabilities
Guarantee liabilities include Finnvera loan of EUR 50.7 million (including
interest) recognised as unsecured restructuring debt under the draft
restructuring programme due to the guarantee given on behalf of the debtor
Talvivaara Sotkamo and a third-party security granted to Finnvera in the amount
of EUR 8.2 million (including accrued interest).
All amounts of reorganisation debts remain subject to change at the time of
these Financial Statements and may only be finalised following the confirmation
of the draft restructuring programme.
5. Contingencies and commitments
Counter indemnity given as a guarantee for the guarantee insurance provided by
Atradius Credit Insurance N.V to Kainuu ELY Centre
Group Parent Company
As at As at As at As at
EUR 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015
--------------------------------------------------
Counter indemnity given as a -
guarantee - - 31,940,000
--------------------------------------------------
0 - 0 31,940,000
--------------------------------------------------
Talvivaara Sotkamo largely met its environmental bond requirement under the
environmental permit through guarantee insurance provided by Atradius Credit
Insurance NV ("Atradius"). As at 31 December 2015, the coverage amounted to EUR
31.9 million. In the event restoration of the mine's waste areas (gypsum ponds,
heap areas) would have taken place without Talvivaara Sotkamo carrying the cost,
the expenses would have initially been covered by Atradius and eventually
Atradius would have claimed the cost back from the Company, which has given
counter-indemnity for such costs to Atradius. However, as a result of Terrafame
replacing the guarantee insurance placed by Talvivaara Sotkamo with a new
environmental bond on 21 January 2016, Atradius notified the Parent Company that
the original guarantee insurance and the corresponding counter-indemnity
terminated on 21 January 2016 and that the beneficiaries, Kainuun ELY-keskus or
Atradius, have no claims against Talvivaara Sotkamo or the Parent Company on the
basis of the guarantee insurance or the counter-indemnity issued by the Parent
Company. Therefore, the full amount of the liability under the counter-indemnity
given by the Parent Company has been removed from the Parent Company's
restructuring debts, and no payment will be made on it under the authorised
payment schedule.
As at 31 December 2015, the coverage amounted to EUR 31.9 million. As a result
of Terrafame replacing the guarantee insurance placed by Talvivaara Sotkamo with
a new environmental bond, Atradius notified the Parent Company that the original
guarantee insurance and the corresponding counter-indemnity terminated on 21
January 2016.
The future aggregate minimum lease payments under non-cancellable operating
leases
Group Parent Company
EUR 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015
------------- ------------------------- ------------
No later than 1 year 75,590 - 75,590 93,497
Later than 1 year and not
later than 5 years 24,908 - 24,908 41,000
------------- ------------------------- ------------
100,498 - 100,498 134,497
The Parent Company has not terminated lease agreements on the basis of section
27 of the Restructuring of Enterprises Act.
Securities given by the Parent Company under the Multicurrency Revolving
Facility Agreement and the Finnvera Financing Agreements
The securities given under the Multicurrency Revolving Facility Agreement (EUR
70 million) and the Finnvera Financing Agreements (EUR 50 million and EUR 10
million) include:
* Pledge of all shares owned by the Parent Company in Talvivaara Sotkamo
* Pledge of floating charge notes registered over assets of the Parent Company
in the amount of EUR 300 million
* Pledge of intra-group receivables of the Parent Company from Talvivaara
Sotkamo
* Pledge of insurance receivables
In addition, Parent the Company has guaranteed the obligations of Talvivaara
Sotkamo under the Finnvera Promissary Note in the amount of EUR 60 million by a
specific Surety Obligation.
Talvivaara Mining Company Plc
Key financial figures Group Parent Company
Twelve Twelve Twelve Twelve
months to months to months to months to
31 Dec 16 31 Dec 15 31 Dec 16 31 Dec 15
------------------------------------------------
Other operating income EUR '000 14,027 - 14,027 6,702
Operating profit/loss EUR '000 213,767 - 213,770 (180)
Operating profit/loss 1,524.0 % - 1,524.0 % (2.7 %)
percentage
Profit/loss before tax EUR '000 198,526 - 198,529 (26,010)
Profit/loss for the EUR '000 198,526 - 198,529 (26,010)
period
Return on equity n/a - n/a n/a
Equity-to-assets ratio (12,996.7 %) - (12,988.5 %) (7,525.6 %)
Net interest-bearing EUR '000 461,302 - 461,313 473,183
debt
Debt-to-equity ratio (86.8 %) - (86.8 %) (64.8 %)
Return on investment n/a - n/a n/a
Capital expenditure EUR '000 - - - 284
Property, plant and EUR '000 19 - - 4,693
equipment
Borrowings EUR '000 465,078 - 465,078 477,845
Cash and cash EUR '000 3,777 - 3,766 4,663
equivalents
Share-related key figures Twelve Twelve
months to months to
31 Dec 16 31 Dec 15
--------------------
Earnings per share EUR 0.09 (0.01)
Equity per share EUR (0.25) (0.35)
Employee-related key figures Twelve Twelve
months to months to
31 Dec 16 31 Dec 15
--------------------
Salaries EUR '000 2,080 3,206
Average number of employees 25 50
Number of employees at the end of the period 20 39
Key financial figures of the Group
Return on equity Loss for the period
-------------------------------------------------------
(Total equity at the beginning of period + Total
equity at the end of period)/2
Equity-to-assets ratio Total equity
-------------------------------------------------------
Total assets
Net interest-bearing debt Interest-bearing debt - Cash and cash equivalent
Debt-to-equity ratio Net interest-bearing debt
-------------------------------------------------------
Total equity
Return on investment Loss for the period + Finance cost
-------------------------------------------------------
(Total equity at the beginning of period + Total
equity at the end of period)/2 +
(Borrowings at the beginning of period + Borrowings at
the end of period)/2
Share-related key figures
Earnings per share Loss attributable to equity holders of the Company
-----------------------------------------------------
Adjusted average number of shares
Equity per share Equity attributable to equity holders of the Company
-----------------------------------------------------
Adjusted average number of shares
[]
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