Stock Exchange Release
Talvivaara Mining Company Plc
16 February 2012
Talvivaara Mining Company
annual results review for year ended 31 December 2011
Significant progress in ramp-up achieved, overcoming technical
issues in metals recovery
Highlights of Q4 2011
Record
quarterly production of 4,769t nickel and 10,524t zinc owing to improved plant
availability
Net sales EUR
66.5m (Q4 2010: EUR 60.2m)
Operating profit EUR 14.9m (Q4 2010: EUR 14.3m)
Revolving credit facility increased to EUR
130m and maturity extended by one year to June 2014
European Commission approval for uranium
off-take agreement with Cameco Corporation received
Highlights of 2011
Progress
in ramp-up continued with 16,087t nickel production, up 55% from 10,382t in
2010
Zinc production 31,815t,
up 25% from 25,462t in 2010
Net
sales EUR 231.2m (2010: EUR 152.2m)
Operating profit EUR 30.9m (2010: EUR 25.5m)
Acquisition of an additional 4% shareholding
in the operating subsidiary Talvivaara Sotkamo Ltd from Outokumpu Mining Oy for
EUR 60m in June
Uranium
off-take agreement signed with Cameco Corporation in February
Highlights after the reporting
period
Management
changes
Harri Natunen appointed CEO of Talvivaara and to join the Company
from 19 March 2012
Current CEO
Pekka Perä to become Executive Chairman following the Annual General Meeting to
be held on 26 April 2012
Key figures
EUR million
Q4
2011
Q4
2010
FY
2011
FY
2010
Net sales
66.5
60.2
231.2
152.2
Operating profit (loss)
14.9
14.3
30.9
25.5
%
of net sales
22.5%
23.8%
13.4%
16.7%
Profit (loss) for the period
3.7
(0.9)
(5.2)
(7.7)
Earnings per share, EUR
0.01
(0.01)
(0.04)
(0.04)
Equity-to-assets ratio
27.9%
31.7%
27.9%
31.7%
Net interest bearing debt
455.7
315.0
455.7
315.0
Debt-to-equity ratio
141.3%
81.7%
141.3%
81.7%
Capital expenditure
21.6
23.5
79.1
115.7
Cash and cash equivalents at the end of the period
40.0
165.6
40.0
165.6
Number of employees at the end of the period
461
389
461
389
All reported figures in this release are unaudited.
CEO Pekka Perä
comments: "2011 marked another
significant step in Talvivaara's development into a fully producing mining
company. Whilst not without its challenges, the lessons learnt have provided a
good platform for ongoing improvement and ramp-up in 2012. During the spring of
2011, we held an extended upgrade and maintenance stoppage to remove bottlenecks
and to improve the availability of the metals recovery plant. Whilst these
targets were initially achieved, production unfortunately suffered from
unexpected downtime at the hydrogen sulphide generators during the third
quarter, stemming from insufficient control of operating procedures and
subsequent breakage of heating elements and lack of spare parts. The decision to
downgrade our production target in response was accompanied by an overhaul of
our management structures and increased emphasis on operational systems to
better reflect Talvivaara's shift to steady production.
These improvements are part
of an on-going process, and we are already seeing a positive impact on processes
that are running more steadily, and on morale on the ground which is improving.
Moreover, we were delighted that we reached our revised nickel production target
of 16,000tpa by the end of December 2011. Our production target for 2012 is
25,000-30,000t of nickel, which we believe we can achieve with continued focus
on process optimization and management systems.
The environment is
fundamental to Talvivaara's success and remains a priority for us. When higher
than expected levels of manganese and sulphate were detected in treated process
waters in late 2010, partly due to adjustments made to our processes to minimise
hydrogen sulphide odour levels at the site, we worked hard in conjunction with
local authorities to remedy the situation. Manganese discharges have been
reduced by 80% and sulphate levels by 50% since early 2011, and we are
continuing to focus on further recycling of process waters, optimised
consumption of chemicals and research into other technologies and equipment to
reduce these even further. Minimising our environmental footprint remains one of
our key goals in the years to come.
2011 was a turbulent year in
the global markets, but despite a fall from earlier highs and a degree of
volatility, metal prices held out comparatively well. We expect a high degree of
volatility and uncertainty to persist in the short term, but, backed by
sustained worldwide demand driven particularly by China, we continue to have
confidence in the long-term strength of the commodity market.
After eight challenging but
very enjoyable years as CEO I have taken the decision to step down from day to
day management at Talvivaara. Following the search to recruit an operationally
focused CEO who will take the Company forward into steady state and growing
production, I am delighted to announce that Harri Natunen will join the Company
on 19 March 2012 and step in as CEO after the AGM on 26 April 2012. He has a
very extensive and successful background in managing mining and metallurgical
operations internationally and can therefore provide us with the expertise that
is necessary for us to reach our full scale production and cost targets.
My own intention is to
continue to provide my full support as Executive Chairman after the upcoming
AGM. The current Chairman Edward Haslam will remain a Board member and will thus
continue to provide his guidance and expertise which have been absolutely
instrumental to Talvivaara's development ever since 2006.
Finally, I have every
confidence in the team at Talvivaara, and would like to thank them for their
hard work and commitment which I have witnessed whilst working together. I also
wish to extend my sincere thanks to the current Board of Directors for their
commitment, and especially to the departing Chairman Edward Haslam."
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 16 February 2012 at 9:00 am GMT/11:00 am EET
A combined presentation, conference call and
live webcast on the Annual Results will be held on 16 February 2012 at 9:00 am
UK/11:00 am Finland at Event Arena Bank, Helsinki, Finland. The presentation
will be held in English.
http://qsb.webcast.fi/t/talvivaara/talvivaara_2012_0216_q4/
A conference call facility is available for
participants joining via telephone and there will be a Q&A following the
presentation.
Listen via
teleconference:
Europe & U.K Participants: +44 (0)20 7162
0077
US Participants: +1 334 323 6201
Finnish Participants: +358 (0)9 2313 9201
Conference id: 909943
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 shortly after the event until the end of 2012.
Summary of stock exchange
releases and announcements
Talvivaara has released a summary of stock
exchange releases and announcements made in 2011 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
Improved reliability in production
All-time production records for nickel and
zinc were achieved in the fourth quarter of 2011 with nickel production of
4,769t (Q4 2010: 3,831t) and zinc output of 10,524t (Q4 2010: 9,369t). The
monthly volumes achieved in December were especially promising at 1,924t nickel
and 4,653t of zinc, indicating that the production rates required to achieve the
2012 production targets of 25,000-30,000t nickel and 50,000-60,000t zinc had
effectively been reached.
The fourth quarter production benefitted from
significantly improved metals plant availability, which at 85% was at the level
expected to be maintained in 2012. This level was reached after both production
lines operated steadily from mid-October onwards after having suffered a series
of unscheduled stoppages in the third quarter.
The mining department produced 3.2Mt of ore
(Q4 2010: 3.3Mt) and 2.0Mt of waste (Q4 2010: 4.3Mt). The mining operations were
uneventful during the period, but the total tonnage mined was affected by part,
on average a third, of the mobile equipment having been on loan at the materials
handling department to assist in the reclaiming of the primary heap.
In materials handling, the availability of
the crushing circuit continued to improve and reached a level where it is no
longer expected to impact on achieving the planned 2012 production. However,
reclaiming of the primary heap continued to perform below expectations and was a
bottleneck to the materials handling output overall. Measures taken to improve
the reclaiming capacity included amongst others the testing of new loading
arrangements to increase the feed rate of reclaimed ore to conveyors. The
results of these trials were sufficiently promising to warrant their planned
implementation in early 2012. The amount of ore stacked during the quarter was
3.2Mt (Q4 2010: 2.9Mt).
Bioheapleaching progressed according to
expectations during the fourth quarter with the average nickel grade in solution
pumped to the metals recovery plant remaining steady at around 2 g/l. Solution
was drawn from primary heap sections 1, 3 and 4, and from the secondary heap.
Primary heap section 2 was under construction with expected completion in
February 2012.
Production key
figures
Q4
2011
Q4
2010
FY
2011
FY
2010
Mining
Ore production
Mt
3.2
3.3
11.1
13.3
Waste production
Mt
2.0
4.3
17.0
16.7
Materials handling
Stacked ore
Mt
3.2
2.9
11.1
13.3
Bioheapleaching
Ore under leaching
Mt
35.6
24.3
35.6
24.3
Metals recovery
Nickel metal content
Tonnes
4,769
3,831
16,087
10,382
Zinc metal content
Tonnes
10,524
9,369
31,815
25,462
Financial
performance in the fourth quarter of 2011
Net sales
and financial result
Talvivaara's net sales for nickel and cobalt
deliveries to Norilsk Nickel and for zinc deliveries to Nyrstar during the
quarter ended 31 December 2011 amounted to EUR 66.5 million (Q4 2010: EUR 60.2
million). Net sales increased by 9.7% compared to the previous quarter mainly
due to the recognition of additional extraction and processing fees for zinc
deliveries in 2011, stemming from increased raw materials prices, in particular
those of elemental sulphur and propane. Product deliveries at 4,658 tonnes of
nickel, 134 tonnes of cobalt and 11,669 tonnes of zinc also increased from Q3
2011, but due to the decline in nickel price, this had little effect on the
revenues.
Operating profit for Q4 2011 was EUR 14.9
million (Q4 2010: EUR 14.3 million). Materials and services for the quarter were
EUR (37.7) million (Q4 2010: EUR (30.7) million) and other operating expenses
EUR (13.1) million (Q4 2010: EUR (13.6) million).
Profit for the period amounted to EUR 3.7
million (Q4 2010: loss of EUR (0.9) million).
Balance
sheet and financing
Capital expenditure during the quarter
totalled EUR 21.6 million (Q4 2010: EUR 23.5 million). The expenditure was in
line with expectations and related primarily to the construction of secondary
heap foundations and the uranium extraction facility, and equipment for
secondary leaching.
In October, Talvivaara signed an amendment
agreement to the EUR 100 million revolving credit facility with Nordea Bank,
Sampo Bank, Svenska Handelsbanken and Pohjola Bank. The facility was increased
to EUR 130 million upon the addition of Pohjola Bank to the lender group. The
maturity of the facility was also extended by a year until 30 June 2014. As at
31 December 2011, the outstanding loan amount was EUR 50 million (2010: EUR
0).
During the quarter, Talvivaara issued
commercial paper notes with the nominal value of EUR 8.5 million based on the
maximum EUR 100 million programme with Sampo Bank, Nordea Bank and Svenska
Handelsbanken. On 31 December 2011, the outstanding commercial paper notes
amounted to the nominal value of EUR 8.5 million.
Currency
option programme
In December 2011, Talvivaara entered into a
currency option programme comprising USD options for three months from January
2012 through March 2012. The monthly obligation is USD 5.0 million and
protection is USD 5.0 million. The collar ranges from 1.1140 to 1.4500.
Base metals prices impacted by macroeconomic
uncertainty
Base metals prices were generally at their
lowest levels of the year during the fourth quarter, partially reflecting
downgraded prospects for global economic growth and consequently base metals
demand. The European sovereign debt crisis also intensified during the quarter,
contributing to overall de-risking by investors across asset classes and further
pressure on base metals prices. Towards the end of the quarter, however, the
market gained a degree of positive momentum following European policy
initiatives to contain the debt crisis and more encouraging data on
macroeconomic development. The London Metal Exchange ("LME") cash price for
nickel declined to its 2011 low of USD 16,935/t in late November and recovered
by the year-end to USD 18,280/t, with the quarterly average being USD
18,303/t.
The global nickel supply-demand balance
remained in a slight deficit in 2011 according to Brook Hunt, as several new
large-scale laterite projects continued to face commissioning issues. While
Chinese nickel pig iron ("NPI") contributed to increased supply, NPI capacity
was reportedly shut down already at price levels around USD 19,000/t while
nickel prices were declining during the autumn. LME nickel stocks continued to
decline during the quarter and were at their lowest levels since early 2009 at
around 90,000 tonnes.
Talvivaara's annual
results review 2011
2011 market environment was a tale of two
halves
During the first half of 2011, commodities
demand benefitted from a robust global growth outlook, reflected in strong base
metals prices. Demand from China, in particular, continued to grow rapidly.
Towards the summer, sovereign debt and fiscal stability concerns in a number of
European countries began to impact financial markets with the effect carrying
over to base metals during the latter part of the summer. The Euro area crisis
intensified during the second half of the year, and compounded with growing
concerns over macroeconomic growth in both mature and developing markets,
resulted in increased risk aversion and lower base metals prices.
The LME cash price for nickel averaged USD
22,830/t for the year, some 5% above the 2010 average of USD 21,804/t.
Reflecting the broader market sentiment, the price averaged USD 25,565/t for the
first half, USD 20,202/t for the second half and USD 18,303/t for the fourth
quarter. The LME zinc price followed a broadly similar pattern, averaging USD
2,191/t for the year, up some 2% from USD 2,157/t in 2010.
Global primary nickel consumption in 2011 was
some 1.63 million tonnes, marking an increase of 6.5% from 1.53 million tonnes
in 2010. China comprised approximately 40% of global demand in 2011, with
year-on-year consumption growth at 21%. (Source: Brook
Hunt)
Global refined nickel output grew by 12.4% to
1.63 million tonnes in 2011, leaving the market in a slight deficit for the
year. Supply growth was to a large extent driven by a 55% increase in Chinese
NPI output, although the weaker nickel price environment towards the end of the
year resulted in shutdowns of NPI capacity. Several greenfield nickel projects
expected to come on-stream in 2011 continued to face commissioning issues,
delaying supply growth. (Source: Brook Hunt)
The EUR/USD exchange rate remained volatile
throughout 2011, and was impacted by the Euro area crisis particularly towards
the end of the year. The Euro averaged 1.39 US dollars for 2011, and closed the
year at approximately 1.30.
Significant progress in ramp-up despite
technical issues in metals recovery
Talvivaara closed the year having produced
16,087t of nickel, up 55% from 10,382t in 2010. For zinc, the corresponding
figures were 31,815t in 2011 and 25,462t in 2010, implying a 25% increase
year-on-year. While this progress is further proof of the feasibility of
Talvivaara's processes in large scale operation, it left room for improvement
particularly in the reliability of the metals recovery process and equipment
availability across all functions. In order to close the performance gap to full
scale production, increasing attention was paid on process optimisation and
management systems especially during the latter half of the year.
Year 2011 started off with an extended period
of cold, sub -20°C temperatures in Sotkamo, and with the metals plant partly
handicapped by the after-effects of a transformer failure in late 2010. Despite
the challenging start, metals production during the first quarter progressed
well and proved the capabilities of the plant in full scale production. However,
the high rate of production especially in March also exposed certain bottlenecks
which had to be removed in order to sustain the achieved throughput rates and to
ramp up production further. The Company therefore decided to hold an extended
maintenance break in April-May 2011 to allow for all of the identified issues to
be addressed and for the plant to be thoroughly inspected as part of the
Company's preventive maintenance plan.
The upgrade and maintenance programme was
carried out successfully and production re-started according to plan. However,
within weeks of the re-start, the heating elements in the hydrogen sulphide
generators started to fail at a rate that caused an acute lack of spare parts.
The failure of the heating elements was found to have been caused by excessive
operating temperatures in the hydrogen sulphide process, and the operating
procedure was subsequently amended to reflect this. However, the shortage in the
spare parts inventory continued to severely affect production for several
months, until mid-October.
The decision to hold the extended upgrade and
maintenance stoppage first forced the Company to cut its production target for
the year from 30,000t of nickel to 22,000-28,000t, as announced in April. In
October, a further reduction of guidance to 16,000t of nickel had to be
announced, resulting from the problems with the hydrogen sulphide generators.
During the fourth quarter, production reliability improved significantly
allowing Talvivaara to reach the latest guidance level.
Partly in response to the production issues,
but significantly also to the uncertainties in the market environment,
Talvivaara announced in October its intention to shift its short term focus from
maximisation of production volume to optimisation of profitability. Measures
taken to realise this strategy included reduced use of contractors particularly
in materials handling and efforts to optimise chemicals consumption in metals
recovery. These measures will continue into 2012, partly as part of the
Company's focus on improving its management systems, but are not expected to
materially affect the production output.
At the departmental level mining continued
uneventfully with 11.1Mt (2010: 13.3Mt) of ore and 17.0Mt (2010: 16.7Mt) of
waste blasted. The total output was slightly down from the year before,
reflecting the bottleneck in materials handling. Waste mining continued at a
high level with waste rock being used for the levelling of the secondary heap
foundations.
In materials handling, the volume of crushed
and stacked ore in 2011 amounted to 11.1Mt (2010: 13.3Mt). Production output was
restricted by delays in commissioning of the primary heap reclaiming system,
which operated substantially below the budgeted levels throughout the year.
Improved operating methods were however identified during the fourth quarter and
will be implemented in early 2012.
Bioheapleaching progressed according to
expectations during the year, with secondary leaching also proving successful
upon increasing amounts of ore being transferred from the primary to the
secondary heap. Nickel grades in leach solution varied from slightly less than 2
g/l to more than 3.5 g/l, reflecting different ages of heaps and varying
depletion rates of solution to metals recovery. At year end, the nickel grade in
solution pumped to the metals recovery plant was around 2 g/l.
Reliability and availability of the metals
recovery plant proved to be the decisive factor in determining the overall
production output for the year. The availability of the plant in 2011 was
approximately 49%, which is well below any reasonably targeted long term levels,
but in part still reflects the limited operating history of the facility. Whilst
no fundamental problems at the plant have been identified, focus on improving
the robustness and reliability of production will continue in 2012.
Financial review
Net sales
and financial result
Talvivaara's net sales during the financial
year ended 31 December 2011 amounted to EUR 231.2 million
(2010: EUR 152.2 million). 15,795 tonnes of nickel, 35,935 tonnes of zinc, and
approximately 400 tonnes of cobalt were sold during the year.
The Group's other operating income amounted
to EUR 2.3 million (2010: EUR 20.9 million) and came mainly from indemnities on
losses, gains on the sale of the Talvivaara-Murtomäki railroad to the Finnish
State and fair value gains on derivatives.
Materials and services during the financial
year ended 31 December 2011 amounted to EUR (135.0) million (2010: EUR (99.0)
million). The largest cost items were consumables, external services and
production chemicals, particularly propane and caustic soda (lye). The increase
in materials and services reflects the increase in production volumes from 2010
to 2011.
Employee benefit expenses including the value
of employee expenses related to the employee share option scheme of 2007 were
EUR (25.5) million (2010: EUR (19.9) million). The increase was mostly
attributable to the increased number of personnel.
Other operating expenses amounted to EUR
(55.2) million (2010: EUR (43.8) million), of which energy and maintenance costs
comprised more than two thirds. Operating profit came to EUR 30.9 million (2010:
EUR 25.5 million). The operating margin was 13.4%, down from 16.7% reported in
2010 primarily due to the reported production problems and related maintenance
costs and cost inefficiencies in 2011.
Finance income for the financial year was EUR
1.2 million (2010: EUR 3.5 million) and consisted mainly of interests on bank
accounts and exchange rate gains. Finance costs of EUR (39.1) million (2010: EUR
(31.7) million) were mainly caused by interest and related financing expenses on
borrowings.
The Company's loss for the financial year
amounted to EUR (5.2) million (2010: EUR (7.7) million).
The total comprehensive income for the
financial year was EUR (14.6) million (2010: EUR (19.1) million), including a
reduction in hedge reserves resulting from the occurrence of the hedged
sales.
Balance
sheet
Capital expenditure in 2011 totalled EUR 79.1
million (2010: EUR 115.7 million). The expenditure related primarily to
secondary heap foundations, secondary leaching equipment, and construction of a
gypsum pond and the uranium extraction facility. On the consolidated statement
of financial position as at 31 December 2011, property, plant and equipment
totalled EUR 762.0 million (31 December 2010: EUR 728.2 million).
In the Group's assets, inventories amounted
to EUR 240.4 million on 31 December 2011 (31 December 2010: EUR 175.4 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.
During the third quarter the Company re-evaluated the assumptions concerning the
operating capacity of the Talvivaara mine to the extent such assumptions are
used in inventory recognition. It was concluded that because the ramp-up phase
and optimization of the production processes have proceeded slower than
previously estimated, the expected operating capacity had to be adjusted to
reflect more closely the current and short term expected level of production.
The adjustment to the expected operating capacity had the effect of increasing
the inventories during the second half of the financial year, as a bigger
proportion of the operating costs and related production overheads were
subsequently accumulated as inventories rather than being recognised directly as
costs.
Trade receivables amounted to EUR 64.0
million on 31 December 2011 (31 December 2010: EUR 52.4 million). The increase
in trade receivables reflects primarily the additional extraction and processing
fees for zinc deliveries in 2011, stemming from increased chemical costs in zinc
production.
On 31 December 2011, cash and cash
equivalents totalled EUR 40.0 million (31 December 2010: EUR 165.6 million).
In equity and liabilities, total equity
amounted to EUR 322.6 million on 31 December 2011 (31 December 2010: EUR 385.6
million). The reduction in equity was primarily the result of the acquisition by
Talvivaara of an additional 4% shareholding in its subsidiary Talvivaara Sotkamo
Ltd from Outokumpu Mining Oy. As a result of the acquisition, Talvivaara's
ownership in Talvivaara Sotkamo increased from 80% to 84%, and Talvivaara's
equity decreased by the acquisition costs of EUR 61.9 million. The equity
component of EUR 9.0 million for the senior unsecured convertible bonds due 2015
was also recognised in equity in 2011. A total of 539,407 new shares were
subscribed and paid for in 2011 under the company's stock option rights 2007A
and 2007B and the convertible bonds due 2015, and the entire subscription price
of EUR 2.6 million was recognized in equity.
Borrowings increased from EUR 480.6 million
on 31 December 2010 to EUR 495.7 million at the end of 2011. The changes in
borrowings during the financial year included a partial draw-down of the
revolving credit facility, determination of the equity component for the senior
unsecured convertible bonds due 2015, issuance of commercial paper notes, and
repayment of the borrowings drawn down to finance the construction of the
Talvivaara-Murtomäki railroad.
Total advance payments as at 31 December 2011
amounted to EUR 247.3 million (31 December 2010: EUR 259.9 million). In 2011,
the advance payment from Nyrstar was reclassified as a non-monetary liability,
as the advance payment is repaid through physical deliveries and therefore does
not represent an actual foreign exchange risk. In addition, Talvivaara received
a total of EUR 14.4 million in advance payments during the year based on a
uranium off-take agreement with Cameco Corporation. The advance payment made by
the Finnish state for the railroad was recognized as revenue in September.
Total equity and liabilities as at 31
December 2011 amounted to EUR 1,156.7 million (31 December 2010: EUR 1,214.5
million).
Financing
In October, Talvivaara signed an amendment
agreement to the EUR 100 million revolving credit facility agreement with Nordea
Bank, Sampo Bank, Svenska Handelsbanken and Pohjola Bank. The facility was
expanded to EUR 130 million upon the addition of Pohjola Bank to the lender
group. The maturity of the facility was also extended by a year to 30 June 2014.
As at 31 December 2011, the outstanding loan amount was EUR 50 million (2010:
EUR 0).
During the second half of the year,
Talvivaara issued commercial paper notes with the total nominal value of EUR
18.5 million based on the maximum EUR 100 million programme with Sampo Bank,
Nordea Bank and Svenska Handelsbanken. On 31 December 2011, the outstanding
commercial paper notes amounted to the nominal value of EUR 8.5 million.
In September, the Finnish State paid the
second instalment of its reimbursement towards the construction costs of the
Talvivaara-Murtomäki railroad to Talvivaara Infrastructure Oy. As a result of
the reimbursement totalling EUR 40 million, the railroad became property of the
Finnish State and a part of the national rail network. After the reimbursement,
Talvivaara repaid the remaining EUR 18.7 million term loan and the EUR 4.2
million interest subsidy loans drawn down to finance the railroad
construction.
In February, Talvivaara signed a uranium
off-take agreement with Cameco Corporation. Under the terms of the agreement,
Cameco will provide an upfront investment of up to USD 60 million to cover the
construction costs of the uranium production facility and extraction circuit.
Talvivaara will repay the investment through deliveries of uranium concentrate
during the initial years of the agreement. Once the capital sum has been repaid,
all uranium concentrate produced thereafter until 31 December 2027 will be
bought by Cameco at a price based on market prices at the time of delivery.
In January, an Extraordinary General Meeting
of Talvivaara resolved to approve the proposal of the Board of Directors for the
issue of special rights in relation to EUR 225 million senior unsecured
convertible bonds issued in December 2010 and due in December 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.
Business development and commercial
arrangements
Planned uranium extraction
and uranium off-take agreement with Cameco Corporation
In February, Talvivaara signed a uranium off-take agreement with Cameco
Corporation. Under the terms of the agreement, Cameco will provide an up-front
investment of up to USD 60 million to cover the construction costs of the
uranium extraction circuit and related facilities.
Cameco's capital contribution will be repaid
through deliveries of uranium concentrate in the initial years of the agreement.
Once the capital is repaid, Cameco will purchase the uranium concentrate
produced at Sotkamo through a supply agreement that will be in effect until 31
December 2027. Cameco will provide Talvivaara with payment for the uranium based
on a formula that references market prices at the time of delivery.
Annual uranium production is estimated at
350tU (ca. 770,000 pounds), corresponding to approximately 410t (900,000 pounds)
of yellow cake (UO4).
In August 2011, Talvivaara obtained a
construction permit for the uranium recovery facility and construction work
commenced. Commissioning of the facility, subject to receiving the necessary
permits and authorizations (as further described in the Permitting section), is
expected during the second half of 2012. Cameco is providing technical
assistance to Talvivaara in the design, construction, commissioning and later in
the operation of the uranium extraction circuit.
Production expansion -
Operation Overlord
Conceptual studies relating to
production expansion beyond 50,000tpa of nickel were carried out throughout the
year. A dedicated project team was established and at the end of 2011 consisted
of nine members with metallurgical, infrastructure, bioheapleaching, materials
handling and project coordination expertise.
The scoping studies were based on the target
of doubling the presently planned production to approximately 100,000tpa of
nickel. Whilst studies relating to various processing options continue, it
appears relatively likely that a substantial part of the expanded production
would be LME quality nickel metal, i.e. Talvivaara would integrate its
production one step further downstream. Production of cobalt metal remains also
an option, but refining of zinc to zinc metal is currently not within the
planning scope. For certain products and raw materials, e.g. manganese and
sulphuric acid, joint ventures or other partnering arrangements will be
investigated.
The baseline studies of the environment
relating to the planned expansion commenced in the spring of 2011 and by
year-end preparations for the Environmental Impact Assessment were at an
advanced stage. Permitting is anticipated to proceed to the submission of an
environmental permit application during 2012.
No investment decisions relating to the
production expansion have yet been taken. Provided the investment is pursued, it
is envisioned to be carried out in a modular fashion to allow spreading out of
the expenditure over an estimated 5-6 year period starting around 2014. The
modular approach also allows commissioning of the equipment and processes
sequentially in the order of the process stages, which is expected to reduce the
risk of serious start-up issues.
Acquisition of an
additional 4% shareholding in the operating subsidiary Talvivaara Sotkamo Ltd
from Outokumpu Mining Oy
Talvivaara Mining Company
signed an agreement on 1 June 2011 with Outokumpu Mining Oy and its parent
company Outokumpu Oyj to acquire an additional 4% shareholding in Talvivaara
Sotkamo Ltd. As a result of the acquisition, Talvivaara's ownership in
Talvivaara Sotkamo increased from 80% to 84% and Outokumpu Mining's ownership
decreased to 16%. The acquisition price for the 4% stake was EUR 60 million.
Simultaneously, Talvivaara entered into an
exclusive option agreement with Outokumpu Mining Oy and Outokumpu Oyj (the
"Option") whereby it will have the right, at its sole discretion, in one or more
installments, to acquire Outokumpu Mining's remaining 16% shareholding in
Talvivaara Sotkamo for EUR 240 million at any time prior to 31 March 2012.
As of 31 December 2011 Talvivaara had not
exercised the Option and the Board considered it unlikely that the Option would
be exercised.
Redemption of the
Talvivaara-Murtomäki railroad by the Finnish State
In 2008-2009, Talvivaara constructed a 25 km railway connecting the Talvivaara
mine with the national railway grid. Subject to agreed minimum transportation
volumes on the railroad being achieved, the Finnish State agreed to reimburse
the construction expenses to Talvivaara Infrastructure Ltd up to an amount of
EUR 40 million (0% VAT) in two instalments and to redeem the railroad. The first
agreed transportation milestone was reached in 2010 and the Finnish State
subsequently paid EUR 20 million in June 2010 as a partial reimbursement. The
remaining minimum transportation volumes were reached in January 2011, and the
Finnish State paid the remaining EUR 20 million in September 2011. In
conjunction with the final reimbursement, the railroad became property of the
Finnish State and part of the national rail network.
Geology
During 2011, Talvivaara's geological
activities focused primarily on resource infill drilling to improve geological
mapping of already known ore profiles. Apart from a brief campaign at the
Kuusilampi deposit in early 2011, drilling was carried out at the Kolmisoppi
deposit where mining operations have not yet commenced. In total, approximately
11,000 metres were drilled during the year.
Talvivaara's total mineral resources, as
defined by the JORC code, stand at 1,550Mt and Measured and Indicated Resources
at 1,121Mt. The resources contain 3.4Mt of nickel and 7.6Mt of zinc at average
metal grades of 0.22% nickel and 0.49% zinc.
Significant exploration potential remains
between the Kuusilampi and Kolmisoppi deposits and to the north of the
Kolmisoppi deposit. Talvivaara expects to update its mineral resources statement
in late 2012.
Research and development
Talvivaara's research and development
activities focused mainly 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 the behaviour of full scale
heaps, improving heap aeration concepts, and optimising the hydrodynamics of the
heaps. Four test heaps of 50,000t of ore each were constructed and started up
during the second half of the year to study parameters for improved leaching
efficiency. The results obtained from these heaps to-date are promising and
provide further insight into optimisation of the full scale heap performance as
well as leaching costs.
In metals recovery, the focus was on
production capacity and product quality improvement especially regarding the
moisture content of the zinc product. Chemical purity of all products, in
particular copper sulphide, was also in focus, as was the optimisation of
chemicals consumption to reduce costs.
Catalytic burning of hydrogen sulphide to
avoid odour problems and to reduce caustic soda consumption was one of the key
projects of the year with a clear target at production application in 2012. The
tests showed that hydrogen sulphide can be converted to sulphur oxides which in
turn can be scrubbed out without caustic soda. As a result, the investment
project in catalytic burning was committed and is expected to be completed
during the coming summer.
As a response to the increased sulphate
levels in effluent waters discovered in late 2010, a project to evaluate and
develop relevant water purification technologies for sulphate removal commenced
in early 2011. The project comprised initially a technology study together with
VTT, the Technical Research Centre of Finland, to compare various technologies
available for this application. The study was later continued as a
techno/economical study for selected appropriate technologies. As a result, a
membrane technology was chosen and the work continued with laboratory tests to
develop design criteria for further testing and eventually for an industrial
scale plant.
Various tests and piloting activities were
carried out to provide necessary data for the uranium permitting process. A
continuous pilot process was also run with the chosen technology supplier to
verify the uranium extraction process.
Sustainable development
Talvivaara continued to develop its
operations in line with its sustainable development policy which emphasizes
continuous improvement and operational excellence. In 2011, the Company paid
special attention to improved control of water discharges, active stakeholder
communication especially in the areas neighbouring the mine, and implementation
of management systems supportive of sustainable development.
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 throughout the year.
Some further improvements in 2012 are still necessary for the dust and hydrogen
sulphide emission limits set in Talvivaara's environmental permit to be
consistently met.
Water emissions were in a particular focus
following the higher than anticipated concentrations of sulphate and manganese
in discharge waters in late 2010 and early 2011. With immediate reaction to the
elevated concentrations, the sulphate and manganese levels reduced significantly
already by the summer of 2011 and any permanent damage to the nearby lakes was
avoided. By the end of the year, water quality in the lakes closest to the mine
had already started to improve even in the deepest sections, where most of the
sulphate containing water had stratified. Going into 2012, recycling of process
waters at Talvivaara is being increased and new water purification methods are
being tested with the aim of implementing yet additional purification steps
within the next 2-3 years. The catalytic burning of hydrogen sulphide, which
Talvivaara intends to start in 2012, has the potential of significantly reducing
caustic soda consumption, which in turn is expected to reduce sodium and
sulphate concentration in process waters.
The sulphate and manganese discharges from
the mine attracted significant media attention during the last quarter of the
year, causing concern for many of Talvivaara's stakeholders. In response, the
Ministry of the Environment requested a statement from the local Environmental
Authority to attest whether the monitoring of the mine had been sufficient and
whether there were grounds to consider coercive measures against Talvivaara. The
conclusion, which was found satisfactory by the Ministry, was that the
monitoring programme had been and continues to be extensive, and that no grounds
for coercive measures, e.g. fines or limitation of production, were found.
Talvivaara took again part in the CDP carbon
footprint reporting initiative. This data gathering and reporting exercise will
help the Company to optimize its greenhouse gas emissions in the future.
Talvivaara also continued to develop its Global Reporting Initiative (GRI)
reporting and related data verification.
Talvivaara was awarded the environmental
management system ISO 14001 certification in December 2010, followed by
continuous improvement of the system throughout 2011. The Company also prepared
for the certification of the OHSAS 18001 occupational health and safety
standard, and commenced development of a risk management system in accordance
with the ISO 31000 standard. Risk assessment for disasters under the Seveso
Directive was updated.
The environmental security placed for future
restoration of the area and monitoring obligations amounted to EUR 32.7 million
at the year-end (2010: EUR 27.0 million).
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. The injury
frequency in 2011 was 14.7 lost time injuries/million working hours (2010: 10.7
lost time injuries/million working hours).
Open and frequent communication is of utmost
importance when building a long-term, trusting relationship with the nearby
residents and communities, and Talvivaara has focused increasingly emphasis on
its community programme during the past year. Open days for visitors and
meetings with the local residents continued; in addition, a new, locally focused
internet site was launched soon after the year end to provide up-to-date
environmental information and a discussion and feedback channel for the local
residents.
Permitting
Permitting work during the year related to
the extraction of uranium as a by-product, the renewal of the existing
environmental permit for the Talvivaara mine, and preparations for the
permitting process pertaining to the planned production expansion, first to
50,000tpa and subsequently to up to 100,000tpa of nickel.
In March, Talvivaara submitted an application
for the renewal of the existing environmental permit to the regional
environmental permitting agency. The updated permit is expected to be obtained
by the autumn of 2012.