STOCK EXCHANGE RELEASE
17 February 2011
Talvivaara Mining Company annual results
review for year ended 31 December 2010
Highlights of the fourth quarter of
2010
· Nickel production 3,831t, up 19% from Q3 2010
· Zinc production 9,369t, up 36% from Q3 2010
· Record quarterly net sales at EUR 60.2m and third consecutive quarterly
operating profit at EUR 14.3m
· Successful issuance of EUR
225m senior unsecured convertible bonds due 2015 in December
· 54% upgrade in total mineral resources to 1,550mt announced in October;
3.4mt contained nickel and 7.6mt of contained zinc warrant assessment of options
for production capacity expansion
Highlights of 2010
·
Net sales EUR 152.2m (2009: EUR 7.6m)
· First full-year
operating profit of EUR 25.5m (2009: loss of EUR 54.8m)
·
Progress in ramp-up confirmed through 10,382t nickel production (2009: 735t) and
25,462t zinc output (2009: 3,133t)
· EUR 100m corporate
revolving credit facility signed in June; facility undrawn at year end
· Zinc streaming agreement with Nyrstar for 1.25mt of zinc in
concentrate completed in February; USD 335m pre-payment received
· Net debt significantly reduced through repayment of USD 320m
project loan facility in February using the Nyrstar pre-payment
· Permit application to extract uranium as a by-product lodged in April;
Environmental Impact Assessment on uranium extraction carried out during the
remainder of the year
Highlights after the
reporting period
· Uranium off-take agreement signed
with Cameco Corporation on 7 February 2011; Cameco to provide an upfront
investment of up to USD 60m to cover the construction costs of the uranium
extraction circuit
Key figures
EUR
million
Q4
2010
Q4
2009
FY
2010
FY
2009
Net sales
60.2
5.0
152.2
7.6
Operating
profit (loss)
14.3
(31.6)
25.5
(54.8)
% of net
sales
23.8%
(635.6%)
16.7%
(723.5%)
Profit (loss) for the
period
(4.7)
(33.0)
(13.1)
(55.0)
Earnings per share,
EUR
(0.02)
(0.11)
(0.06)
(0.19)
Equity-to-assets
ratio
31.3%
43.5%
31.3%
43.5%
Net interest bearing debt
315.0
426.2
315.0
426.2
Debt-to-equity ratio
82.8%
111.4%
82.8%
111.4%
Capital
expenditure
23.5
36.5
115.7
118.5
Cash and cash
equivalents at the end of the period
165.6
11.9
165.6
11.9
Number of
employees at the end of the period
389
308
389
308
All reported figures in this release are unaudited.
CEO Pekka Perä comments: "2010 was a significant year in
Talvivaara's development as we overcame early challenges in metals recovery to
produce more than 10,000t of nickel and reached a close to 30,000tpa nickel peak
production rate by the year end. In 2011 our full focus remains on the ramp up
of our operations as we complete the final phase of Talvivaara's development and
proceed into full production. For the current year, we reiterate the
30,000-35,000t nickel production guidance.
Talvivaara enters 2011 in a strong financial
position following our recent convertible bond issue in December and the
innovative zinc streaming agreement signed with Nyrstar earlier in the year. We
are also proud to announce our maiden full-year operating profit and a third
consecutive quarterly operating profit.
In the past year, we announced a further
upgrade in our resources, the third since Talvivaara came to the market in 2007.
Alongside a robust financial position, this enables us to consider our future
options as a growth company and strengthens our potential to expand
organically.
While we aim to deliver value from our
deposits through further production expansion, we believe we can also better
exploit the polymetallic nature of the ore by broadening our product portfolio
using our low-cost and sustainable technologies. To this end, we were delighted
to announce the recent off-take agreement with Cameco for uranium production; we
look forward to their support and expertise through the permitting process and
the planning and construction of the uranium recovery circuit at the
site.
Our outlook on the commodity market remains
positive for 2011. Whilst the volatility seen in the last few years is likely to
persist, commodity prices are supported by strong demand from China and a
gradual recovery in demand from Western economies.
Finally, I would like to thank our
shareholders for their ongoing support and our management and operational teams
for their hard work during the past year and for their commitment as we seek to
realise Talvivaara's full potential."
Enquiries:
Talvivaara Mining Company Plc Tel. +358
20 712 9800
Pekka Perä, CEO
Saila Miettinen-Lähde, CFO
Merlin Tel. +44 20 726 8400
David Simonson
Anca Spiridon
Presentation and live webcast on 17 February
2011 at 12:00 GMT/14:00 EET
A combined presentation, conference call and live webcast on
the annual results will be held on 17 February 2011 at 12:00 GMT/14:00 EET at
Hotel Scandic Simonkenttä, Simonkatu 9, Helsinki, Finland. The presentation
will be held in English.
http://qsb.webcast.fi/t/talvivaara/talvivaara_2011_0217_Q4/
A conference call facility will be available for a Q&A with
senior management following the presentation.
Europe & U.K Participants: +44 (0)20 7162 0077
US Participants: +1 334 323 6201
Finnish Participants: +358 (0)9 2313
9201
Conference id: 886274
Further details on the event can be found on the Talvivaara
website, www.talvivaara.com. The webcast will also be available for
viewing on the Talvivaara website from shortly after the event until the end of
December 2011.
Summary of stock exchange releases and
announcements
Talvivaara has released a summary of stock exchange releases
and announcements made in 2010 in accordance with the Finnish Securities Market
Act, Chapter 2 Section 10c. The summary is posted at www.talvivaara.com.
Talvivaara notes that some of the information given in the
releases may be out of date.
Talvivaara's fourth quarter
review
Base metals markets strengthened towards the
year end
Base metals prices improved during the fourth quarter, partly
as a reflection of improved investor sentiment and strengthening of the equity
markets. Other factors behind the market development included continued strong
growth in Asia and Germany and significant improvement in North America. Overall
there was also evidence of stronger demand for commodities as an asset class,
providing participation in the Chinese economic expansion. Sovereign debt
concerns in certain European countries seemed to have relatively small and short
lived carry-over effect in the base metals markets.
The supply-demand balance in nickel was under much
speculation for most of 2010. Towards the end of the year, the expectations for
supply in 2011 decreased, as it was becoming increasingly likely that the
commencement of several new nickel operations would be slower than previously
anticipated. The potential supply tightness, together with the anticipated
recovery in stainless steel demand, were also factors in the 5.8% increase in
the nickel price to above USD 24,700 per tonne during the quarter. Zinc price
increased by 11.8% to more than USD 2,400 per tonne.
Continued progress in ramp-up
Production ramp-up at the Talvivaara mine continued at a
steady rate during the fourth quarter resulting in another record set of
quarterly production numbers. Nickel production amounted to 3,831t, up by 19%
from 3,211t in Q3 2010. Zinc production increased by 36% to 9,369t from 7,557t
in the previous quarter. The comparative fourth quarter production figures in
2009 were 410t of nickel and 2,313t of zinc.
The mining department produced 3.3Mt of ore (Q4 2009: 3.5Mt)
and 4.3Mt of waste (Q4 2009: 1.5Mt). While the mining operations overall were
uneventful during the period, the ore mining was restricted by bottlenecks in
materials handling.
In materials handling, a significant milestone was reached
when reclaiming and re-stacking of the primary heap commenced in November with
purpose-built production scale equipment. However, the process suffered from
technical commissioning issues through the year-end, causing the crushing and
stacking operations to fall behind the budgeted levels. The amount of ore
crushed and stacked during the quarter was 2.9Mt (Q4 2009: 3.0Mt).
Bioheapleaching progressed according to expectations during
the fourth quarter. The average nickel grades in solution pumped to metals
recovery rose from 1.7g/l in October to 2.0g/l in November and further to above
2.2g/l in December. By the year-end, the main sources of leach solution were
heap sections 3 and 4. Leaching rates from the secondary heap were good during
the quarter, but solution quantities were not sufficient for metals recovery due
to the start-up problems faced in primary heap reclaiming.
The planned set-up of the metals recovery facility was
completed in December with the commissioning of the second hydrogen plant. While
the additional hydrogen capacity in itself is critical for full scale
production, the second plant also provides much needed additional certainty to
plant availability.
The plant availability improved overall during the fourth
quarter, but a setback was suffered as a result of a transformer failure in
December. Although the failure caused a power outage of only some hours, it
resulted in notable production loss because the second production line was
off-line for nearly two weeks as a consequence of the outage. The production
line stoppage resulted primarily from freezing of pipes in the sub -20°C
temperature prevailing at the time; no material equipment breakages were
detected.
The annualised production rate during the fourth quarter was
on average 15,200 tonnes of nickel. The peak production rates reached during the
period were close to 30,000 tpa of nickel, proving the capability of the plant
in achieving the rate targeted for the year end. However, as process
optimisation at the plant still continues, the higher production rates were not
yet sustainable for extended periods of time.
A break-through in controlling the hydrogen sulphide odours
was made through the use of hydrogen peroxide as the odour controlling chemical.
The necessary plant modifications to enable the permanent use of hydrogen
peroxide in the process were planned during the fourth quarter, while the
hydrogen peroxide feed into the system was managed using temporary equipment for
the time being.
Production key
figures
Q4
2010
Q4
2009
FY
2010
FY
2009
Mining
Blasted ore
Mt
3.3
3.5
13.3
10.8
Excavated
waste
Mt
4.3
1.5
16.7
4.3
Materials handling
Stacked ore
Mt
2.9
3.0
13.3
8.5
Bioheapleaching
Ore
under leaching
Mt
24.3
11.0
24.3
11.0
Metals recovery
Nickel metal content
Tonnes
3,831
410
10,382
735
Zinc metal content
Tonnes
9,369
2,313
25,462
3,133
Financial performance in the fourth quarter
of 2010
Talvivaara's net sales for nickel and cobalt deliveries to
Norilsk Nickel and for zinc deliveries to Nyrstar during the three months ended
31 December 2010 increased by 34% from the previous quarter and totalled EUR
60.2 million (Q4 2009: EUR 5.0 million). The product deliveries amounted to
3,823 tonnes of nickel and 5,710 tonnes of zinc.
The Group's other operating income of EUR 3.7 million (Q4
2009: EUR 6.0 million) comprised mainly an indemnity from stop-loss insurance
relating to a hydrogen plant failure in February 2010.
Materials and services amounted to EUR (30.7) million (Q4
2009: EUR (24.9) million). The costs increased by 14% from EUR (26.9) million in
the previous quarter, reflecting the growth in production volumes and related
use of production chemicals, particularly burnt lime and propane.
Other operating expenses amounted to EUR (13.6) million (Q4
2009: EUR (28.6) million), increasing by 24% from the previous quarter. The
relative growth in costs was slightly higher than the growth in production,
mainly due to accruals in maintenance costs, higher cost and consumption of
electricity during the colder winter season, and freight.
Operating profit for Q4 2010 was EUR 14.3 million (Q4 2009:
loss of EUR 31.6 million). The operating margin of 24% remained essentially
unchanged from that reported for the third quarter.
Finance cost, net of finance income of EUR 81,000, amounted
to EUR (13.2) million (Q4 2009: EUR (13.5) million). It consisted primarily of
interests on borrowings of approximately EUR (7.2) million, and non-cash
exchange rate losses of approximately EUR (5.2) million on the USD 335 million
Nyrstar advance payment.
Loss for the period amounted to EUR (4.7) million (Q4 2009:
EUR (33.0) million).
Capital expenditure during the quarter totalled EUR 23.5
million (Q4 2009: EUR 36.5 million). The expenditure related primarily to earth
works at the secondary heap foundations, and to the secondary heap stacker and
conveyors.
Talvivaara's annual results review
2010
Market environment improved in 2010
The global economic recovery after the financial crisis
reflected positively in commodities demand and prices in 2010. Base metals
benefitted from growing demand arising particularly from China, but improvements
were also seen in Europe and North America especially towards the year end.
Besides physical demand, investor activity and sentiment in the equity markets
also recovered during the second half of the year.
The London Metal Exchange ("LME") cash price for nickel
averaged USD 21,804/t for the year, improving significantly from the 2009
average of USD 14,711/t. In the first four months of 2010, nickel prices rose
from the lows of around USD 17,000/t to the highs above USD 27,000/t for the
year, reflecting restocking and Chinese imports of the metal. After the
restocking cycle ended in the spring, demand, particularly in the stainless
steel industry, weakened for several months, but started to improve again
especially during the fourth quarter. Overall, the world stainless melt
production in 2010 is estimated to have grown by some 23% to 30.8 million
tonnes, with much of the increase taking place in China.
The world refined nickel supply is estimated to have
increased by 6.5% over 2009 to 1.42 million tonnes in 2010. Reflecting the
global economic recovery, the demand increased by 13.5% to 1.50 million tonnes,
leaving the market at a deficit of over 80,000t (Source: Brook
Hunt). The outlook for the nickel market in 2011 shaped towards the more
positive during the last months of 2010, as it was becoming increasingly
probable that demand would continue to grow, but supply from several new
greenfield projects was likely to be delayed.
Largely in line with nickel, the zinc market also showed
signs of improvement. Zinc price movements through the year followed a similar
pattern to that seen in nickel, with the LME cash price ranging from slightly
less than USD 1,600/t to almost USD 2,700/t. The average price of zinc in 2010
was USD 2,157/t.
Volatility in the EUR/USD exchange rate remained high and
very reactive to a range of economic indicators throughout the year. Volatility
in currency exchanges was also reflected in commodity prices, where the relative
weakness in the US dollar typically correlated with higher commodity prices,
thus partly hedging Talvivaara's exposure to EUR/USD volatility.
As Talvivaara's revenues reflect US dollar denominated metal
sales while the cost base is primarily in euro, the Company is highly exposed to
the market environment both as regards commodity prices and currency exchange
rates. Talvivaara is, however, not directly exposed to variations in global
demand as its main products, nickel and zinc sulphides, are sold to customers
under long-term contracts.
Focus on production ramp-up
Talvivaara's focus remained firmly on production ramp-up
throughout the year. Optimisation of the already operating equipment and
processes continued, and pre-requisites for full-scale production were fulfilled
through the commissioning of the second production line at the metals recovery
plant, completion of initial sections of the secondary leaching areas,
installation of the secondary heap stacking and primary heap reclaiming systems,
and finally the commissioning of the second hydrogen and hydrogen sulphide
plants.
The scalability of the production processes and progress in
ramp-up were confirmed by the production volumes achieved in 2010: 10,382t of
nickel (2009: 735t) and 25,462t of zinc (2009: 3,133t). Although the production
fell short of the originally budgeted figures, the ramp-up trend seen from the
second quarter onwards was encouraging with a relatively steady, close to 20%
quarterly increase in nickel production and the pre-requisites in place for the
trend to continue into 2011.
The Sotkamo operations faced a series of technical challenges
during the year, ranging from a hydrogen plant failure to insufficient hydrogen
sulphide capacity caused by installation faults in the hydrogen sulphide
generator. Also, hydrogen sulphide emissions forced production levels to be
restricted for several months because of odour discharges. Production losses
resulting from these and other start-up issues were inevitable and at times
substantial, but the problems were nevertheless overcome in an effective manner
and production reliability improved markedly towards the end of the year. The
organisation demonstrated its ability to solve technical problems and to learn
from its mistakes, which is of great importance in view of the remaining ramp-up
and eventual steady-state operations. To further improve thorough understanding
and optimisation of the production processes, risk management and preventive
maintenance, a production reliability programme was established in August 2010
involving the entire production organisation at all levels.
At the departmental level mining performed well throughout
the year, blasting 13.3Mt (2009: 10.8Mt) of ore and 16.7Mt (2009: 4.3Mt) of
waste, increasing the total mining output by 99% compared to the previous year.
Waste mining increased significantly as waste rock was used for the levelling of
the secondary heap foundations.
In materials handling, the volume of crushed and stacked ore
in 2010 amounted to 13.3mt (2009: 8.5mt). Although the increase in output
compared to the year before was substantial and the peak production levels
improved beyond the nameplate capacities, the overall availability of the
crushing circuit still remained below target. Given the large amount of ore
already under leaching, this is not considered an issue in view of the planned
2011 metals production, but needs further attention with regard to longer term
production targets.
The installation and commissioning of the primary heap
reclaiming and secondary heap stacking systems represented a major challenge and
a milestone for the materials handling department. Both systems were started up
in the autumn and the secondary stacker has since been in production with good
results. Commissioning of the primary heap reclaiming equipment has however been
slower, resulting in reduced overall crushing and stacking output in the fourth
quarter.
Bioheapleaching progressed according to expectations during
the year. The primary heap was fully stacked for the first time in November, and
secondary leaching had started with good results earlier in the fall. In process
development, particular attention was paid to improved aeration. As a result,
nickel grades in leach solution increased especially in the newer heap sections,
reaching levels well above 3 g/l in some sections. Overall, the nickel grade in
solution pumped to the metals recovery plant increased to around 2.2 g/l by year
end.
The successful and timely commissioning of the second
production line in the summer and the start-up of the second hydrogen plant and
hydrogen sulphide generator in the autumn were major milestones for metals
recovery in 2010. However, in its first year of continuous operation the metals
recovery plant also suffered from various technical start-up problems and
related down-time. Furthermore, process optimisation and de-bottlenecking were
ongoing through the period and will continue into 2011. At year-end 2010, plant
availability and throughput had already improved especially on the first
production line, but work remained to be done in order for the plant to be
capable of sustained full capacity production.
Financial review
Financial result
Talvivaara's net sales during the financial
year ended 31 December 2010 amounted to EUR 152.2 million (2009: EUR 7.6
million). 9,438 tonnes of nickel, 20,320 tonnes of zinc, and 94 tonnes of cobalt
were sold during the financial year.
The Group's other operating income consisted
mainly of realised gains on nickel and zinc forwards and indemnity from
stop-loss insurance relating to a hydrogen plant failure in February 2010 and
amounted to EUR 20.9 million (2009: EUR 43.1 million).
Personnel expenses including the value of
employee expenses related to the employee share option scheme of 2007 were EUR
(19.9) million (2009: EUR (17.7) million). The rise was attributable to an
increased number of personnel.
Other operating expenses amounted to EUR
(43.8) million (2009: EUR (61.1) million) and included realised and fair value
losses on interest rate swaps and USD forwards and options. Maintenance costs of
EUR (13.0) million and energy costs of EUR (11.2) million comprise most of the
remainder.
Operating profit amounted to EUR 25.5 million
(2009: loss of EUR 54.8 million).
Finance income for the financial year was EUR
3.5 million (2009: EUR 11.5 million) and consisted mainly of exchange rate gains
on deposits. Finance costs of EUR (38.8) million (2009: EUR (31.8) million)
comprised primarily unrealised exchange rate losses of EUR (18.7) million on the
USD 320 million Project Term Loan Facility and on the USD 335 million Nyrstar
advance payment. Interest on borrowings amounted to EUR (18.5) million.
Loss before income tax was EUR (9.9) million.
The tax expense of EUR (3.1) million resulted from a decrease in deferred tax
assets, in turn caused by a release of deferred tax assets relating to sale of
derivatives. Reflecting the progressing ramp-up of production, the Company's
loss for the financial year reduced to EUR (13.1) million from EUR (55.0)
million in 2009.
The total comprehensive loss for 2010 was EUR
(24.4) million (2009: EUR (124.7) million), including a reduction in hedge
reserves resulting from the occurrence of the hedged sales.
Balance
sheet
Capital expenditure during the financial year totalled EUR
115.7 million (2009: EUR 118.5 million). The expenditure related primarily to
the construction of heap foundations, installation of the second production line
of the metals recovery plant, and to the secondary heap stacker and conveyors.
On the consolidated statement of financial position as at 31 December 2010,
property, plant and equipment totalled EUR 728.2 million (31 December 2009: EUR
644.4 million), including finance lease contracts amounting to EUR 77.8 million.
Of this, finance lease contracts entered into in 2010 amounted to EUR 59.9
million (2009: EUR 16.0 million).
During 2008-2009, Talvivaara Infrastructure Oy constructed a
new railway connecting the mine site with the national railway grid. As of 30
June 2010, the railway has been classified to assets held for sale, as the first
agreed minimum transportation requirement was reached in May 2010 and the
Finnish State made a partial redemption payment for the railroad in June.
Property, plant and equipment was reduced by EUR 39.4 million due to the
reclassification.
In the Group's assets, inventories amounted to EUR 175.4
million on 31 December 2010 (31 December 2009: EUR 109.5 million). The increase
in inventories reflected the ramp-up of production and the consequent increase
in the amount of ore stacked on heaps, valued at cost.
All nickel, zinc and USD forwards were closed in Q1 2010 and as
at 31 December 2010 the derivative financial instruments consisted of interest
rate swaps and USD options, which were valued at EUR (1.2) million and
recognised in liabilities (derivative financial assets on 31 December 2009: EUR
33.1 million).
At the end of 2010, cash and cash equivalents totalled EUR
165.6 million (31 December 2009: EUR 11.9 million).
In equity and liabilities, the total equity amounted to EUR
380.3 million on 31 December 2010 (31 December 2009: EUR 382.6 million),
including approximately EUR 25 million from a perpetual capital loan. A total of
174,378 new shares were subscribed and paid for during 2010 under the company's
stock option rights 2007A and the entire subscription price of EUR 0.5 million
was recognised in equity.
Borrowings increased from EUR 438.1 million on 31 December
2009 to EUR 480.6 million at the end of 2010. The changes in borrowings during
the year included the repayment of a USD 320 million Project Term Loan Facility
in February, and an offering of EUR 225.0 million of senior unsecured
convertible bonds due 2015 in December.
Talvivaara received a total of EUR 263.0 million in advance
payments during the financial year, comprising USD 335.0 million for the Zinc in
Concentrate Streaming Agreement with Nyrstar NV ("Nyrstar"), and EUR 20 million
paid by the Finnish State as an advance payment for the redemption of the
Talvivaara-Murtomäki railway.
Total equity and liabilities as at 31 December 2010 amounted
to EUR 1,216.3 million (31 December 2009: EUR 879.0 million).
Currency and commodity hedges and hedge
accounting
In connection with the repayment of the USD 320 million
Project Term Loan Facility in February 2010, the Group closed all of its
commodity and foreign exchange risk hedging positions realising net proceeds of
EUR 46.0 million.
Financing
In December, the Company completed an offering of EUR 225
million of senior unsecured convertible bonds due 2015. The bonds are
convertible into 27.0 million fully paid ordinary shares of the 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.
In June, Talvivaara signed a EUR 100 million three-year
revolving multicurrency credit facility with Nordea Bank, Handelsbanken and
Sampo Bank. The facility had a margin of 3.00% until the end of 2010 and
thereafter it has a varying margin of 1.75%-3.00% depending on the Company's
leverage ratio. The facility is intended for general corporate purposes. As at
31 December 2010, the facility was undrawn.
In June, Talvivaara also signed a EUR 10 million investment
and working capital facility with Finnvera Plc with an eight-year maturity and a
margin of 4.1%. The facility is fully drawn.
In June, the Finnish State paid the first 50% instalment
towards the EUR 40 million (0% VAT) reimbursement granted for the
Talvivaara-Murtomäki railroad. The instalment was used in its entirety to
partially repay the EUR 41 million loan drawn by Talvivaara Infrastructure Oy to
finance the construction of the railroad.
In February, Talvivaara completed a Zinc in Concentrate
Streaming Agreement with Nyrstar. For the agreement, Nyrstar paid a USD 335
million advance payment, the majority of which was used to completely pre-pay
the USD 320 million Project Term Loan Facility.
In February, Talvivaara also drew down a EUR 25 million
perpetual capital loan, which is recognized in equity according to IFRS.
Business development and commercial
arrangements
Zinc in Concentrate
Streaming Agreement with Nyrstar
Talvivaara Sotkamo Ltd completed a long-term zinc streaming
agreement with Nyrstar NV in February 2010. Under the terms of the agreement,
Talvivaara will deliver all of its zinc in concentrate production to Nyrstar
until a total of 1,250,000 metric tonnes of zinc in concentrate has been
delivered.
Nyrstar paid a USD 335 million advance payment for the zinc
stream, in addition to which it will pay Talvivaara an extraction and processing
fee of EUR 350/t of zinc in concentrate delivered (with escalators in relation
to prices of elemental sulphur and propane). The following price participation
was also agreed:
· until the later of the seventh
anniversary of the agreement or delivery of 600,000 tonnes of zinc in
concentrate, Nyrstar will pay to Talvivaara 10% of the LME zinc price exceeding
USD 2,500/t (up to USD 3,000/t), and 30% of the LME zinc price exceeding USD
3,000/t; and
· thereafter, Nyrstar will pay to Talvivaara
30% of the excess of the LME zinc price above the processing fee of EUR 350/t of
zinc in concentrate.
Nyrstar also agreed to supply to Talvivaara up to 150,000
tonnes of sulphuric acid per annum for use in Talvivaara's leaching process
during the period of supply of the zinc in concentrate.
Extraction of uranium as a
by-product
Talvivaara announced in February that it is planning to
initiate the recovery and exploitation of uranium, obtained as a by-product of
other metals, in the form of a uranium intermediate, yellow cake. Talvivaara
plans to recover uranium from its main leaching process by using a safe and
technically simple solvent extraction process which is widely applied to metals
recovery.
The planned investment in the solvent extraction plant is
estimated at approximately EUR 40-50 million and the annual production costs at
approximately EUR 2 million. The annual production volume is estimated at
approximately 350 tonnes of uranium, or 410 tonnes of yellow cake.
The planned uranium production is subject to necessary
permits, including an approval by the Government of Finland. Talvivaara applied
in April 2010 to the Ministry of Employment and Economy for a permit to extract
uranium as a by-product, in accordance with the Nuclear Energy Act.
Negotiations for an off-take agreement for Talvivaara's
planned uranium production were carried out during 2010 and an agreement with
Cameco Corporation was completed in February 2011, as described in Events after
the review period.
Expansion beyond 50,000 tpa
nickel
Following the announcement in October of a 54% upgrade in
total mineral resources at Talvivaara, the Company established a project to
evaluate options for further expansion of production capacity at the Sotkamo
mine. The key areas of evaluation include product and capacity options, raw
materials and supplies availability and logistics, financial feasibility, and
permitting. Scoping studies and permitting work will be the focus areas in 2011,
while it is estimated that the initial stages of the expanded production could
commence in 2015 at the earliest.
Geology
Following successful drilling campaigns at the Kuusilampi and
Kolmisoppi deposits in 2009 and 2010, Talvivaara announced an upgrade in its
mineral resources in October 2010.
The total mineral resources, as defined by the JORC code,
increased by 54% to 1,550Mt from the total of 1,004Mt announced in December
2008. Measured and Indicated Resources increased by 75% to 1,121Mt. The
increased resources contain 3.4Mt of nickel and 7.6Mt of zinc, up from 2.2Mt and
5.0Mt in 2008, respectively.
Most of the new resources were found as a result of an infill
drilling campaign at the Kolmisoppi deposit. The campaign resulted in a 270%
increase in total resources at the deposit from 178Mt to 660Mt.
At the Kuusilampi deposit, geological mapping and diamond
drilling were primarily focused on improving the classification of the orebody
and resulted in a 56% increase in Measured and Indicated Resources from 505Mt to
788Mt. The total resource increased by some 8% to 890Mt. Metal grades in both
deposits remained unchanged at 0.22% nickel and 0.49% zinc, further reaffirming
the homogeneous nature of the ore bodies.
Significant exploration potential remains between the
Kuusilampi and Kolmisoppi deposits and to the north of the Kolmisoppi deposit.
Research and development
Talvivaara's research and development activities focused on
further optimisation of the bioheapleaching and metals recovery processes, and
recovery of additional metals from the leach solution.
Process development work in bioheapleaching included studies
aimed at better understanding of the heap behaviour, improving heap aeration
concepts, and optimising the hydrodynamics of the heap. In metals recovery, the
focus was on product quality improvement especially as regards moisture content
and chemical purity. Studies targeted at reducing operating costs were also
carried out, e.g. relating to caustic soda consumption.
The effective removal of odours caused by hydrogen sulphide
emissions became one of the most important short term development topics early
on in 2010 when it became obvious that the existing gas scrubbing capacity was
not sufficient during commercial scale operation of the metals recovery plant.
Initially the existing concept of gas scrubbing using caustic soda was
developed, but other process options were also researched. Finally hydrogen
sulphide removal using hydrogen peroxide was chosen as a method of choice and
applied in production during the fourth quarter.
Development of a solvent extraction method to recover uranium
from the leach solution continued through 2010. During the latter half of the
year, the work was increasingly focused on industrial scale development and the
basic and detailed engineering of the planned production unit.
Feasibility studies on manganese extraction from the leach
solution continued. Electrowinning technology was successfully employed to
recover manganese metal, manganese oxide and manganese sulphate. Any decisions
on potential investment in commercial scale manganese production are pending a
partnering arrangement relating to the production and marketing of the potential
manganese products.
Sustainable development
Talvivaara continued to develop its operations according to
its sustainable development policy which emphasizes continuous improvement and
operational excellence.
With respect to safety issues Talvivaara's goal is a safe and
healthy working environment, and the Company continued to develop its safety
culture based on zero accident philosophy. As a result of the active safety work
the injury frequency in 2010 was 10.7 lost time injuries/million working hours
(2009: 11 lost time injuries/million working hours).
Talvivaara is committed to continuous improvement in
environmental efficiency, operational risk management and the reduction of
environmental impact. Thanks to investments aimed at reducing emissions to air
the environmental performance improved towards the end of the year. Some further
improvements in 2011 are still necessary for the dust and hydrogen sulphide
emission limits set in Talvivaara's environmental permit to be consistently met.
During 2010 the targets relating to the implementation of new
chemical regulatory frameworks REACH (Registration, Evaluation, Authorisation
and Restriction of Chemicals) and CLP (Classification, Labeling and Packaging of
substances and mixtures) were achieved. Nickel and zinc sulphide dossiers were
submitted to authorities for registration, and the CLP-data for all of
Talvivaara's substances were gathered and compiled.
Talvivaara was one of the 26 companies in Finland who took
part in the CDP carbon footprint reporting initiative. This exercise of data
gathering and reporting will help the Company to optimize its greenhouse gas
emissions in the future.
Permitting work during the year related to uranium extraction
as a by-product and updating of the existing environmental permit for the
Talvivaara mine. The Environmental Impact Assessment for uranium extraction was
carried out in 2010 and the environmental permit application for the process is
expected to be submitted during the first quarter of 2011. The existing
environmental permit will be submitted for renewal by the end of first quarter
2011. The updating work for the submission was largely carried out in 2010.
The environmental security placed for future restoration of
the area and monitoring obligations amounted to EUR 27.0 million at the year-end
(2009: EUR 15.3 million).
A major milestone in the Company's environmental management
was reached in December 2010, when Talvivaara was awarded certification for the
environmental management system ISO 14001 covering all operations of the
Company. In line with the guidelines set by the ISO 14001 system, the goals in
Talvivaara's operations in the future include continuous improvement,
sustainable and economic use of natural resources, and development of all
processes in order to minimize the environmental impact of the mine.
Risk management and key risks
In line with current corporate governance guidelines on risk
management, Talvivaara carries out an ongoing 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.
In 2010, the Company's risk management activities were
focused on developing risk management practices within departments and
functions, partly as part of internal development programmes relating to
environment, health and safety, internal controls, and production reliability.
The goal set for 2011 is to update the Group level risk management policies to
reflect Talvivaara's present development stage as an operational rather than a
project focused entity. The planned Group level risk assessment will be based on
findings from the department level work and on experience gained from the chosen
risk assessment tools which take into account the probability and estimated
impact of the identified risks.
Talvivaara's operations are affected by risks common to the
mining industry, such as risks relating to the development of Talvivaara's
mineral deposits, estimates of reserves and resources, infrastructure , and
volatility of commodity prices. There are also risks related to currency
exchange ratios, management and control systems, historical losses and
uncertainties about the future profitability of Talvivaara, counter parties,
dependence on key personnel, effect of laws, governmental regulations and
related costs, environmental hazards, and risks related to Talvivaara's mining
concessions and permits.
In the short term, Talvivaara's key operational risks relate
to the ongoing ramp-up of operations. While the Company has demonstrated that
all of its production processes work and can be operated on industrial scale,
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 metals recovery in bioheapleaching. In addition, there may 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 approximately 90% of the
Company's revenues and variations in 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 profitably 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 materially
adverse effect on the business and financial position 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.
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.
Talvivaara seeks to reduce liquidity risk by close monitoring of liquidity in
order to detect any threat of adverse changes in advance so as to allow for
sufficient time to secure access to adequate credit or other funding on
reasonable terms. Talvivaara also seeks to maintain a balanced maturity profile
of its long-term debt in order to mitigate refinancing risks.
Personnel
The growth in Talvivaara's human resources remained strong
during the financial year, with the total number of employees increasing from
308 to 389. The personnel are mostly recruited locally from the Kainuu region,
where Talvivaara is the largest provider of new job opportunities.
The average age of Talvivaara's personnel remained at 38.5
years, and the age distribution of employees is comparable to the industry
average in Finland. In its recruitment process, Talvivaara has sought to
maintain a representative staff age structure, in spite of the exceptionally
vigorous rate of recruitment. Although the mining industry has conventionally
been male-dominated, Talvivaara seeks to hire employees representing both
genders. This has however proven difficult due to the limited number of female
applicants.
Personnel turnover decreased during the reporting year. It
mainly affected newly recruited employees and did not affect the Company's
operations. The personnel turnover at Talvivaara Sotkamo Ltd was 5.1% (2009:
10.6%), and there was no personnel turnover at Talvivaara MiningCompany (2009:
10.6%).
The salaries and wages of Talvivaara's personnel are based on
industry-wide collective agreements and company-specific job grading. The total
compensation consists of base salary and short and long term incentive schemes.
Annual short term incentive metrics include personal performance based and
company-wide criteria. During the current ramp-up phase the primary criteria is
Talvivaara's production output. The Company's long term incentive schemes
comprise Talvivaara's Stock Options 2007, which are allocated to all personnel,
and a management holding company Talvivaara Management Oy, which is targeted to
executive management and requires personal investment in the Company's shares by
the participants.
Personnel development is based on annual training and
development plans. All Talvivaara personnel participate in introductory training
with work safety as a key component. The Company's target is also that all of
its employees will have first aid competence.
Additions to the Executive Committee
Eeva Ruokonen, M.Sc.(Mining), Lic.Tech.(Mineral Processing)
was appointed Chief Sustainability Officer and member of Talvivaara's Executive
Committee from February 2010.
Jari Voutilainen, M.Sc.(Tech), was appointed General Manager
- Business Development and member of the Company's Executive Committee from
December 2010.
Corporate governance statement
Talvivaara will issue a Corporate Governance Statement of
2010 and publish it as part of its Annual Report and as a separate statement on
its website at www.talvivaara.com during the week starting 28 March 2011.
The Corporate Governance Statement will not form part of the Board of Directors'
Report.
Resolutions of the Annual General
Meeting
The resolutions of Talvivaara's Annual General Meeting held
on 15 April 2010 included:
· that the number of Board members be changed to eight and
that Mr. Gordon Edward Haslam, Mr. D. Graham Titcombe, Ms. Eileen Carr, Mr. Eero
Niiva, Ms. Saila Miettinen-Lähde, and Mr. Pekka Perä be re-appointed as
directors of the Company, and that Mr. Roland Junck and Mr. Tapani Järvinen be
appointed as new directors of the Company;
· that article 5 of the Company's articles of association be
amended to provide for a retirement of all the members of the Board of Directors
at each Annual General Meeting of Shareholders;
· that article 12 of the Company's articles of association
be amended so that the shareholders are convened to the Annual or Extraordinary
Shareholders' Meeting by a notice sent at the earliest three (3) months and at
the latest twenty-one (21) days before the meeting, however, at the minimum nine
(9) days before the record date of the Shareholder's' Meeting. Further, to be
allowed to take part in a Shareholders' Meeting a shareholder must register with
the Company at the latest by the date mentioned in the notice convening the
meeting and which date may not be earlier than ten (10) days before the
Shareholders' Meeting; and
· that the Board of Directors be authorised to decide on
repurchasing a maximum of 10,000,000 of the Company's own shares through public
trading, and to decide on conveying a maximum of 10,000,000 of the Company's own
shares, each in deviation of the pre-emptive rights of shareholders.
Shares and shareholders
The number of shares issued and outstanding and registered on
the Euroclear Shareholder Register as of 31 December 2010 was 245,316,718.
Including the effect of the convertible bond of 14 May 2008 and the Option
Scheme of 2007, the authorised full number of shares of the Company amounted to
263,669,291. At year end, the EUR 225 million convertible bond of 16 December
2010 had not yet been granted special rights entitling to conversion; hence the
effect of the bond is not included in the authorised full number of shares.
The share subscription period for stock options 2007A
commenced on 1 April 2010 and ends on 31 March 2012. By 31 December 2010 a total
of 174,378 Talvivaara Mining Company Plc's new shares had been subscribed for
under the stock option rights 2007A and a total of 2,158,722 stock option rights
2007A remained unexercised.
As at 31 December 2010, the shareholders who held more than
5% of the shares and votes of Talvivaara were Pekka Perä (23.0 %), Varma Mutual
Pension Insurance Company (8.6%), and BlackRock Investment Management Ltd
(6.0%).
Share based incentive
plans
By resolution passed at the general meeting of shareholders
on 28th February 2007, the Company resolved to issue free stock options to the
key personnel of