Stock Exchange Release
Talvivaara Mining Company Plc
16 August
2012
Talvivaara Mining
Company Interim Report for January-June 2012
Steady progress in
production after re-start of metals plant in April
Financial result impacted by production stoppage and
declining nickel price
Highlights
Q2 2012
Nickel
production of 3,194t and zinc production of 6,686t
Production volumes impacted by dilution of
leach solutions due to rapid spring flooding and excessive rain as well as
scheduled maintenance and fatality-related stoppage in April
Net sales of EUR 33.4m
Operating loss of EUR (10.9)m
New CEO Harri Natunen has conducted a
comprehensive operational review and is implementing a more sustainable
production approach during ramp-up aimed at improving efficiency and reliability
of operations and minimising the environmental impact
Metals recovery plant in continuous and stable
operation with close to 100% availability since late April
H1 2012
Nickel
production of 6,568t and zinc production of 14,576t
Net sales of EUR 72.5m
Operating loss of EUR (22.3)m
Significantly strengthened financial position;
EUR 83m raised from equity placing and EUR 110m from bond issue
Production guidance and operational
outlook
As announced in Talvivaara's Operational
Update of 3 July 2012, the combination of the dilution effect of the excessive
water in circulation and the proactive decision taken to implement a more
sustainable production approach during ramp-up have impacted the Company's
production target for the current year such that the Company could no longer
expect to achieve the previous guidance of 25,000-30,000t of nickel in 2012.
Since the Operational Update, Talvivaara has continued reviewing its operations
and following completion of the assessment, the Company's production guidance
for 2012 is revised to approximately 17,000t of nickel. The revised guidance
accounts for the continued heavy rainfall in July and early August, which has
further prolonged the water balance issues and dilution of leach solutions at
the Sotkamo mine.
Talvivaara continues to anticipate the
annualised production rate to sustainably reach more than 25,000tpa of nickel
during the fourth quarter of the year. The step-up in the production rate is
anticipated to be achievable following the completion of the newly stacked heap
section 3 during August and gradual increase of the leach solution flow rate
through the metals recovery plant from around 1,500 m3/h to 1,800 m3/h over
the coming weeks.
Due to the challenging water balance
situation at mine, Talvivaara has since late June been forced to mine
lower-grade ore from a more distant location than originally planned. As this is
less economical and the Company already has a significant nickel inventory in
the heaps, the Company has decided to alter its near-term production scheme such
that over the next 3-4 months mining and crushing operations will be restricted
and the Company's own mining fleet will be used to enhance reclaiming of the
primary heaps. The planned alteration is expected to accelerate nickel recovery
due to reclaiming and also result in substantial savings. Current year's metal
production is not anticipated to be impacted by the temporary shift in the
production scheme.
Key figures
EUR million
Q2
2012
Q2
2011
Q1-Q2
2012
Q1-Q2
2011
FY
2011
Net sales
33.4
37.6
72.5
104.1
231.2
Operating profit
(loss)
(10.9)
(1.2)
(22.3)
10.4
30.9
% of net sales
(32.5%)
(3.1%)
(30.8%)
10.0%
13.4%
Profit (loss) for
the period
(17.5)
(7.5)
(32.4)
(5.5)
(5.2)
Earnings per
share, EUR
(0.06)
(0.03)
(0.12)
(0.03)
(0.04)
Equity-to-assets
ratio
28.9%
29.0%
28.9%
29.0%
27.9%
Net interest
bearing debt
475.6
417.0
475.6
417.0
455.7
Debt-to-equity
ratio
125.8%
128.2%
125.8%
128.2%
141.3%
Capital
expenditure
20.7
25.1
35.3
35.5
79.1
Cash and cash
equivalents at the end of the period
128.7
46.5
128.7
46.5
40.0
Number of
employees at the end of the period[1]
505
416
505
416
461
All
reported figures in this release are unaudited.
CEO Harri Natunen
comments: "Reporting my first quarter as the CEO of
Talvivaara, I am pleased to note that the organisational and production changes
that we implemented during the spring have started to show good progress in
production stability, with the metals plant reaching a new monthly record of
solution flow rate into the plant in June and the stacking of new ore
continuously improving. Equally significant, we are also seeing important
improvements in personnel morale and our environmental performance. Drawing on
my past experience with similar operations as well as observations of
Talvivaara's people, operations and ore body, I am convinced that we can
overcome our remaining challenges and deliver a sustainable production ramp-up
path.
Whilst this good progress
gives us confidence for the future, we must also accept that we still continued
to encounter a number of challenges during the second quarter. After the very
regrettable accident in March, in which one of our employees lost his life, we
stopped the metals recovery plant in order to conduct safety-related
modifications and improvements and subsequently brought forward scheduled
maintenance from May. As a result, the overall stoppage time and prolonged
start-up impacted second quarter production significantly.
Furthermore, our metals
production was affected by rapid spring flooding and the wettest spring in the
Kainuu region since 1983, which resulted in excess water in circulation and
diluted the leach solutions by around 25-30% compared to the long-term average
water balance in the process. Over the summer we have focused on moderating the
water balance, but the continued unusually heavy rainfall in July and early
August have unfortunately further prolonged the issue. We have taken this into
account when calculating our revised production guidance.
Our financial result for the
second quarter is disappointing, reflecting the limited production levels, but
also the weak nickel price development. The nickel price has declined from
around USD 21,000-22,000 per tonne in early 2012 to around USD 16,000 per tonne
during the summer, primarily driven by macroeconomic uncertainty and weak
stainless steel fundamentals. Whilst nickel and other base metals prices may
remain under pressure in the short term, development of
the commodity utilisation rate of China and re-stocking following the summer
months may provide price support during the coming months.
As a result of the
challenges we have faced during the first half of 2012, and the more sustainable
production approach we are implementing in order to ensure operational stability
and reliability, we have had to revise our production guidance for the current
year to around 17,000 tonnes of nickel. However, encouraged by the steady
performance of our metals recovery process since late April, we continue to
anticipate the annualised production rate to sustainably
reach more than 25,000tpa of nickel in during the fourth quarter.
Whilst excess water at the
minesite has affected our production guidance, it has also impacted our mining
operations such that we have had to mine lower-grade ore further away from
primary crushing than originally planned. In order to avoid this inefficiency
and to accelerate utilisation of the nickel inventories we already have in the
heaps, we have decided to shift our focus from mining to primary heap reclaiming
over the next 3-4 months. During this time, we will also move the excess water
from the open pit to the gypsum pond, which is now being enlarged. We expect
this temporary shift in the production scheme to result in substantial savings,
but do not foresee it affecting our metals production during the current year.
"
1 In addition, the Company employed 90 summer
trainees as at 30 June 2012 and 65 summer trainees as at 30 June 2011.
Enquiries:
Talvivaara Mining Company Plc.
Tel. +358 20 712 9800
Harri Natunen, CEO
Saila Miettinen-Lähde, Deputy CEO and CFO
Merlin PR Tel. +44 20 726
8400
David Simonson
Anca Spiridon
Webcast and conference call on 16
August 2012 at 12:00 BST/14:00 EET
A combined webcast and conference call on the January-June
2012 Interim Result will be held on 16 August 2012 at 12:00 BST/14:00 EET. The
call will be held in English.
The webcast can be accessed through the following link:
http://qsb.webcast.fi/t/talvivaara/talvivaara_2012_0816_q2/
A conference call facility will be available for a Q&A with
senior management following the presentation.
Participant - Finland: +358 (0)9 2313 9201
Participant - UK: +44 (0)20 7162 0025
Participant - US: +1
334 323 6201
Conference ID: 914119
The webcast will also be available for viewing on the
Talvivaara website shortly after the event.
Financial review
Q2
2012 (April-June)
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 30 June 2012 amounted to EUR 33.4 million (Q2 2011: EUR 37.6
million). The net sales decreased by 14.3% compared to Q1 2012 primarily due to
a decline in the nickel price, but also as a result of a slightly lower level of
product deliveries. Product deliveries in Q2 2012 amounted to 2,958 tonnes of
nickel, 92 tonnes of cobalt and 7,107 tonnes of zinc.
The operating loss for Q2 2012 was EUR (10.9)
million (Q2 2011: EUR (1.2) million). During the period, materials and services
amounted to EUR (33.6) million (Q2 2011: EUR (31.9) million) and other operating
expenses to EUR (15.0) million (Q2 2011: EUR (16.7) million). Compared to the
first quarter of 2012, materials and services and other operating expenses
decreased by 9.7%, which is in line with the change in product deliveries during
the respective periods.
Loss for the period amounted to EUR (17.5)
million (Q2 2011: EUR (7.5) million).
Balance
sheet and financing
Capital expenditure during the second quarter
totalled EUR 20.7 million (Q2 2011: EUR 25.1 million). The expenditure primarily
related to a reverse osmosis-based water purification plant, secondary heap
foundations, secondary leaching, gypsum pond and the uranium extraction circuit.
Talvivaara received advance payments amounting to EUR 6.5 million from Cameco
Corporation to cover the costs of construction of the uranium extraction
circuit.
Talvivaara issued a EUR 110 million senior
unsecured bond in March 2012. The bond was settled and the notes were listed on
NASDAQ OMX Helsinki in April.
In April and May, Talvivaara conducted a
buy-back for a portion of the Company's senior unsecured convertible bonds due
in May 2013 amounting to a nominal value of EUR 8 million. The remaining nominal
value of the convertible bonds is EUR 76.9 million.
Talvivaara's EUR 130 million revolving credit
facility was amended in June, changing its margin to 4.00% through June 2013.
Thereafter, the margin will be 1.75-3.00% depending on the Company's leverage
ratio. As at 30 June 2012, EUR 70 million of the facility was drawn.
H1
2012 (January-June)
Net sales
and financial result
Talvivaara's net sales for nickel and cobalt
deliveries to Norilsk Nickel and for zinc deliveries to Nyrstar during H1 2012
amounted to EUR 72.5 million (H1 2011: EUR 104.1 million). Net sales decreased
by 30.4% compared to H1 2011 mainly due to the lower price of nickel. Product
deliveries amounted to 6,480 tonnes of nickel, 188 tonnes of cobalt and 15,440
tonnes of zinc (H1 2011: 6,551 tonnes of nickel, 15,418 tonnes of zinc and 140
tonnes of cobalt).
The Group's other operating income amounted
to EUR 1.5 million (H1 2011: EUR 1.4 million) and came mainly from recovery of
insurable losses.
Materials and services were EUR (68.5)
million in H1 2012 (H1 2011: EUR (68.2) million) and other operating expenses
were EUR (33.9) million (H1 2011: EUR (30.3) million). The largest cost items
were production chemicals, external services, electricity and maintenance.
Employee benefit expenses including the value
of employee expenses related to the employee share option scheme of 2007 were
EUR (14.8) million (H1 2011: EUR (13.4) million). The increase was attributable
to the increased number of personnel.
Operating loss for H1 2012 was EUR (22.3)
million (H1 2011: profit of EUR 10.4 million), corresponding to an operating
margin of (30.8%) (H1 2011: 10.0%). Whilst the key determinant to the change in
the operating margin was the unfavourable development in the nickel price, also
higher than normal maintenance costs relating to the metals plant as well as the
materials handling equipment were a significant factor.
Finance income for the period was EUR 1.6
million (H1 2011: EUR 1.5 million) and consisted mainly of exchange rate gains.
Finance costs of EUR (21.7) million (H1 2011: EUR (18.5) million) resulted
mainly from interest and related financing expenses on borrowings.
Loss for H1 2012 amounted to EUR (32.4)
million (H1 2011: EUR (5.5) million) reflecting the abovementioned factors
including unfavourable development in the nickel price, high maintenance costs
and lower than anticipated level of product deliveries. Earnings per share was
EUR (0.12) (H1 2011: EUR (0.03).
Total comprehensive income for H1 2012 was
EUR (32.4) million (H1 2011: EUR (10.4) million). The change in total
comprehensive income compared to the previous year was mainly attributable to
the expiration of hedge reserves, the reduction of which as a result of the
occurrence of the hedged sales was still included in the figure in 2011.
Balance
sheet
Capital expenditure in H1 2012 totalled EUR
35.3 million (H1 2011: EUR 35.5 million). The expenditure related primarily to a
reverse osmosis-based water purification plant and metals plant modifications to
increase recycling of process waters, earthworks in secondary leaching, gypsum
pond, and the uranium extraction circuit. On the consolidated statement of
financial position as at 30 June 2012, property, plant and equipment was EUR
773.6 million (31 December 2011: EUR 762.0 million).
In the Group's assets, inventories amounted
to EUR 290.6 million on 30 June 2012 (31 December 2011: EUR 240.4 million). The
increase in inventories reflects the ramp-up of production and the consequent
increase in the amount of ore stacked on heaps, valued at cost.
Trade receivables amounted to EUR 51.1
million at 30 June 2012 (31 December 2011: EUR 64.0 million). Trade receivables
remained roughly at the same level as at the end of Q1 2012, but decreased from
Q4 2011 due to a lower level of nickel and zinc deliveries in H1 2012 and a
decreased nickel price.
On 30 June 2012, cash and cash equivalents
was EUR 128.7 million (31 December 2011: EUR 40.0 million).
In equity and liabilities, total equity
amounted to EUR 378.2 million on 30 June 2012 (31 December 2011: EUR 322.6
million). Talvivaara raised EUR 81.5 million, net of transaction costs, from an
issue of 24,589,050 new shares in Q1 2012. In addition, interest cost of EUR 2.8
million of a perpetual capital loan was capitalized in equity. A total of
1,830,087 new shares were subscribed and paid for in H1 2012 under the company's
stock option rights 2007A and the entire subscription price amounting to EUR 4.9
million was recognized in equity.
Borrowings increased from EUR 495.7 million
on 31 December 2011 to EUR 604.4 million at the end of June 2012. The changes in
borrowings during the first half of 2012 included an issue of a senior unsecured
bond of EUR 110 million, a draw-down of EUR 20 million under the revolving
credit facility, a repayment of commercial paper notes amounting to EUR 8.5
million and a buy-back of senior unsecured convertible bonds due 2013 with a
nominal value of EUR 8 million.
Total advance payments as at 30 June 2012
amounted to EUR 252.6 million, representing an increase of EUR 5.3 million from
EUR 247.3 million on 31 December 2011. During the period, Talvivaara received a
total of EUR 8.3 million in advance payments from Cameco based on the uranium
off-take agreement between the companies, whilst the advance payment from
Nyrstar base on the zinc streaming agreement was amortised by EUR 3.0 million as
a result of zinc deliveries.
Total equity and liabilities as at 30 June
2012 amounted to EUR 1,307.2 million (31 December 2011: EUR 1,156.7 million).
Financing
Talvivaara's EUR 130 million revolving credit
facility was amended in June, changing its margin to 4.00% through June 2013.
Thereafter, the margin will be 1.75-3.00% depending on the Company's leverage
ratio. As at 30 June 2012, EUR 70 million of the facility was drawn.
In April and May, Talvivaara conducted a
buy-back for a portion of the Company's senior unsecured convertible bonds due
2013 amounting to a nominal value of EUR 8 million. The remaining senior
unsecured convertible bonds have a nominal value of EUR 76.9 million and are due
in May 2013.
In March, 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 private investors. The bond was settled and
the notes were listed on NASDAQ OMX Helsinki in April.
In February, Talvivaara completed an issue of
24,589,050 new shares representing approximately 10 per cent of the number of
the existing shares of the company. The proceeds of the share issue amounted to
EUR 82.6 million before commissions and expenses and to EUR 81.5 million net of
costs. An Extraordinary General Meeting of Talvivaara Mining Company Plc
resolved to approve the share issue in March, and the new shares were
subsequently registered with the Finnish Trade Register.
Currency
option programme
Talvivaara has entered into a currency option
programme comprising USD options for two months from July 2012 through August
2012. The monthly obligation is USD 2.5 million and protection is USD 2.5
million. The collar ranges from 1.1460 to 1.4500.
Going
concern
Talvivaara Group's forecasts and projections,
taking account of the Group's current liquidity position and reasonably possible
changes in production, metal prices and foreign exchange rates, indicate the
Group to be able to continue in operational existence with adequate financial
resources for the foreseeable future. The Group therefore continues to adopt the
going concern basis in preparing its consolidated financial statements.
Production review
During the second quarter, Talvivaara's
production volumes were adversely impacted by dilution of leach solutions due to
spring flooding and excessive rain, and a scheduled maintenance and a
regrettable fatality related stoppage in April. Second quarter production
amounted to 3,194t of nickel (Q2 2011: 3,951t) and 6,686t of zinc (Q2 2011:
7,662t). During the first half of 2012, Talvivaara produced 6,568t of nickel (H1
2011: 8,166t) and 14,576t on zinc (H1 2011: 14,005t).
In metals recovery, production at the plant
was restricted for most of April due to the stoppage and subsequent changes to
certain operating procedures, the implementation of which slowed down early
ramp-up after the re-start. The production stoppage that followed the fatality
at the plant in March continued through the early part of April whilst the
occupational safety-related clarifications and improvements requested by the
Finnish Safety and Chemicals Agency were completed. Simultaneously the scheduled
maintenance was brought forward from May to April in order to minimise the
overall stoppage time. As a result, nickel production in April amounted to only
198t. After the re-start of all production stages in late April, the metals
plant has operated continuously and steadily, producing 1,477t of nickel in May
and 1,519t in June. The average flow rate of metal containing leach solution to
the plant reached a new monthly record of 1,318 m3/h in June, and the
availability of the plant was effectively 100%.
Throughout the second quarter, metals
production was also affected by flooding that followed the rapid melting of snow
and the unusually heavy rainfall that has amounted to over 190mm during the
spring in comparison to the long term average of approximately 100mm. The excess
water in circulation has diluted the leach solutions such that the average
nickel grade in solution pumped to the metals plant was 1.8 g/l in the second
quarter. The Company estimates the dilutive effect of the recent rainfall having
been around 25-30% compared to the long-term average water balance in the
process. Measures were taken to prevent rainy seasons impacting production in
the future. These include for instance commitment to additional reverse osmosis
capacity beyond the previously announced level, which enables Talvivaara to
further increase recycling of purified process waters and to reduce raw water
intake.
The mining department produced 3.0Mt of ore
(Q2 2011: 2.8Mt) and 1.1Mt of waste (Q2 2011: 5.3Mt). Primary focus continued to
be on ore production, and mining operations matched the ore demand by crushing.
The excess water at the minesite impacted mining operations towards the end of
the quarter, forcing the mining department to excavate slightly lower-grade ore
from a more distant location than originally planned.
Materials handling operations crushed and
stacked 3.0Mt of new ore during the second quarter, and ore under leaching at
the end of the quarter amounted to 41.8Mt. Crushing has demonstrated its ability
to deliver required production levels and reclaiming of the primary heap has
continuously improved thereby eliminating a bottle-neck from materials handling.
As the production of new ore has progressed reasonably well during the first
half of 2012 while metals recovery has had lower availability, the nickel
inventory under leaching in the heaps has continued to grow, providing
additional flexibility for increasing the metals production rates in the coming
months.
Production key
figures
Q2
2012
Q2
2011
Q1-Q2
2012
Q1-Q2
2011
FY
2011
Mining
Ore production
Mt
3.0
2.8
6.1
4.9
11.1
Waste production
Mt
1.1
5.3
2.6
10.4
17.0
Materials handling
Stacked ore
Mt
3.0
2.8
6.1
4.9
11.1
Bioheapleaching
Ore under leaching
Mt
41.8
29.2
41.8
29.2
35.6
Metals recovery
Nickel metal content
Tonnes
3,194
3,951
6,568
8,166
16,087
Zinc metal content
Tonnes
6,686
7,662
14,576
14,005
31,815
Operational review
CEO Harri Natunen has conducted a detailed
operational review since joining Talvivaara in mid-March. Going forward, the
Company will adopt a more sustainable production approach during ramp-up aimed
at improving the efficiency and reliability of operations. In practice this
means implementing a relatively moderate rate of production increase in order to
keep all processes operating in a stable manner such that good product quality
can be maintained, environmental discharges can be minimised, and occupational
safety can be continuously improved.
Sustainable development, safety and
permitting
Safety
A safe working environment and safe working
practices are top priorities for Talvivaara, and following the regrettable
fatality at the site, the Company initiated an unscheduled stoppage in late
March with a focus on preventative safety-related improvements.
Operationally, safety instructions have been
further refined and developed, access practices in the vicinity of the metals
recovery plant have been altered and additional fixed gas detectors are being
installed. Occupational safety-related modifications in the metals recovery
process include among others increased scrubbing of hydrogen sulphide gases and
improved control of hydrogen sulphide feed into the process.
At the end of the second quarter, the injury
frequency among the Talvivaara personnel was 13.7 lost time injuries/million
working hours on a rolling 12 month basis (30 June 2011: 13.1 lost time
injuries/million working hours).
Environment
Talvivaara continues to focus on minimising
the environmental impact of its operations, and during the second quarter the
Company announced investments in environmental technology amounting to more than
EUR 13 million. The new technologies will improve the quality of effluent
waters, reduce odour emissions into the environment and limit dust emissions.
Hydrogen sulphide (odour) emissions have
already declined significantly, and odour complaints from nearby residents have
reduced substantially with May the first month since commencement of production
with no odour complaints. Furthermore, a catalytic burning unit to treat
hydrogen sulphide gases is to be installed in order to further reduce odour
emissions. Dust emissions have been addressed through a new dust removal system
at the screening hall, which was commissioned in July.
Talvivaara has continued to make significant
progress in reducing its sulphate and sodium discharges into nearby lakes as a
result of process improvements and increased water circulation. In order to
further reduce discharges into water, Talvivaara will invest in a reverse
osmosis-based water treatment system, which is expected to be commissioned by
the end of 2012. Following the new water treatment system, the new environmental
permit limits proposed by the Company for 2015 are anticipated to be achievable
already in 2013.
In order to improve timely and transparent
communication on environmental matters with the neighbouring communities and
other interested stakeholders, Talvivaara launched a specific website for this
purpose in January 2012. The Finnish language website, www.paikanpaalla.fi, reviews environmental data and
events in blog format and aims to provide region-specific information in an
easily understandable and concise form.
Permitting
In January, Talvivaara received a positive
opinion on its uranium recovery process from the European Commission under the
Euratom Treaty. In its opinion, the European Commission considered that uranium
recovery at the Talvivaara mine complies with the goals set by the Euratom
Treaty and may improve the supply security of nuclear fuel in the European
Union. In March, Talvivaara also received a licence from the Finnish Government
to extract uranium as a by-product from its existing operations pursuant to the
Nuclear Energy Act. The permit is valid throughout the life of the mine,
however, no longer than until the end of 2054.
In April, Talvivaara was informed by the
Northern Finland Regional State Administrative Agency that the Company's
environmental permit for uranium extraction and the general update of Talvivaara
mine's environmental permit are to be processed together. Consequently, the
Company expects a minor delay in the uranium permitting process. The permitting
authorities have informed Talvivaara that a decision on the environmental permit
for uranium extraction will be made during 2012 in connection with the renewal
of the mine's existing environmental permit. Talvivaara aims to start uranium
recovery as soon as all the necessary permits have been obtained.
Following completion of the Environmental
Impact Assessment ("EIA") programme, the EIA process for the potential expansion
of the Talvivaara mine was initiated during the first quarter. The EIA covers
options to expand production capacity up to 100,000t of nickel per annum, and
also the option to refine nickel sulphide into LME-quality nickel metal.
Talvivaara expects to submit the environmental permit application to expand
production production capacity in early 2013.
Business development
Uranium
production
Talvivaara is preparing for the recovery of
uranium as a by-product of the Company's existing operations. Uranium occurs
naturally in small concentrations in the Talvivaara area and leaches into the
process solution along with Talvivaara's main products. Annual uranium
production is estimated at 350tU (ca. 770,000 pounds), corresponding to
approximately 410t (900,000 pounds) of yellow cake (UO4), and Talvivaara's
entire uranium production will be sold under a long-term agreement to Cameco
Corporation.
Following receipt of the construction permit
in August 2011, Talvivaara commenced construction of the uranium recovery
facility, which will be completed during the current year. The permitting
process for uranium production is ongoing and the start of uranium production is
further subject to, among others, environmental permit approval and chemical
authorisation. The decision on the environmental permit is expected in 2012 in
connection with the general update of the mine's environmental permit.
Production
expansion - Operation Overlord
Conceptual studies relating to production
expansion beyond 50,000tpa of nickel continued during the quarter, with a
particular emphasis on permitting and the ongoing Environmental Impact
Assessment. The scoping studies are 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.
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.
Energy
strategy
Talvivaara's energy strategy is focused on
building an environmentally sound portfolio of low-cost capacity allowing the
Company to be energy self-sufficient in the longer term. Talvivaara's
electricity need is currently approximately 45MW, and is expected to increase
significantly if the Company proceeds with the planned capacity expansion and
further refining of nickel into LME-quality metal.
Talvivaara increased its capacity share in
the Fennovoima nuclear project in Finland from approximately 10MW to
approximately 60MW during the first quarter of 2012. The Company is also
studying, amongst others, on-site windpower production, bioenergy and
utilization of energy generated in the production process.
Annual General Meeting
Talvivaara's Annual General Meeting was held on 26 April 2012
in Sotkamo, Finland. The resolutions of the AGM included:
that no
dividend be paid for the financial year 2011;
that the annual fee payable to the members of the Board for the
term until the close of the Annual General Meeting in 2013 be as follows:
Executive Chairman of the Board EUR 280,000, Deputy Chairman (Senior Independent
Director) EUR 69,000, Chairmen of the Board Committees EUR 69,000 and other
Non-executive Directors EUR 48,000;
that the number of Board members be eight and that Mr. Edward
Haslam, Ms. Eileen Carr, Mr. D. Graham Titcombe, Mr. Tapani Järvinen and Mr.
Pekka Perä be re-elected as Board members and Mr. Stuart Murray, Mr. Michael
Rawlinson and Ms. Kirsi Sormunen be appointed as new members of the
Board;
that the auditor be
reimbursed according to the auditor's approved invoice and authorised public
accountants PricewaterhouseCoopers Oy be elected as the company's auditor for
the financial year 2012;
that the
Board be authorised to decide on the repurchase, in one or several transactions,
of a maximum of 10,000,000 of the Company's own shares. The authorisation is
valid until 25 October 2013 and replaces the authorisation to repurchase
10,000,000 shares granted by the Annual General Meeting of 28 April 2011; and
that the Board be authorised to
decide on the conveyance, in one or several transactions, of a maximum of
10,000,000 of the Company's own shares.The shares may be conveyed to the
Company's shareholders in proportion to their present holding or by waiving the
pre-emptive subscription rights of the shareholders and the authorisation is
valid until 25 April 2014.
Risk management and principal 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.
Talvivaara's operations are affected by
various risks common to the mining industry, such as risks relating to the
development of Talvivaara's mineral deposits, estimates of reserves and
resources, infrastructure risks, and volatility of commodity prices. There are
also risks related to counterparties, currency exchange ratios, management and
control systems, historical losses and uncertainties about the future
profitability of Talvivaara, dependence on key personnel, effect of laws,
governmental regulations and related costs, environmental hazards, and risks
related to Talvivaara's mining concessions and permits.
In the short term, Talvivaara's key
operational risks continue to 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 the extent of 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 close to 90% of the
Company's revenues and variations in the nickel price therefore have a direct
and significant effect on Talvivaara's financial result and economic viability.
Talvivaara is, since February 2010, unhedged against variations in metal prices.
Full or substantially full exposure to nickel prices is in line with
Talvivaara's strategy and supported by the Company's view that it can operate
the Talvivaara mine, once it has been fully ramped up, profitably also during
the lows of commodity price cycles.
Talvivaara's revenues are almost entirely in
US dollars, whilst the majority of the Company's costs are incurred in Euro.
Potential strengthening of the Euro against the US dollar could thus have a
material adverse effect on the business and financial condition of the Company.
Talvivaara hedges its exposure to the US dollar on a case by case basis with the
aim of limiting the adverse effects of US dollar weakness as considered
justified from time to time.
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 and management
The number of personnel employed by the Group
on 30 June 2012 was 595 (Q2 2011: 481), including 90 temporary summer
trainees.
Wages and salaries paid during the three
months to 30 June 2012 totalled EUR 5.7 million (Q2 2011: EUR 5.4 million).
Wages and salaries paid during the six months to 30 June 2012 totalled EUR 12.3
million (H1 2011: EUR 11.3 million).
As part of the Group's long term incentive
plan, the employees of Talvivaara have established a Group personnel fund to
manage the earnings bonuses paid by Talvivaara. In accordance with its bylaws,
the fund will invest a substantial proportion of its assets in Talvivaara Mining
Company shares. The fund is managed by personnel representatives elected by the
employees.
Harri Natunen, 56, was appointed Talvivaara's
CEO effective as of 26 April 2012. Mr. Natunen has had an over thirty-year
successful career in mining and metallurgical operations internationally. His
latest position prior to joining Talvivaara was as Director, Zinc Production and
Business Development at Boliden AB in Sweden 2008-2012, where he held
responsibility over the Kokkola, Finland, and Odda, Norway, zinc operations.
Maija Kaski, 44, was appointed as Chief Human
Resources Officer and Mikko Korteniemi, 53, as Chief Production Officer
(Bioheapleaching and Metals Recovery) and Jari Voutilainen, 46, as Chief Mining
Officer (Mining and Materials Handling) as of 1 June 2012. Previously Mr.
Voutilainen worked for the Company as General Manager of Business Development.
Talvivaara's former Chief Operations Officer,
Lassi Lammassaari, was appointed Vice President - Strategic Projects, also as of
1 June 2012. Mr. Lammassaari will focus on strategically important projects in
the development and expansion of the Company operations.
Following his appointment, CEO Natunen
consolidated the Executive Committee, which now continues in the following
composition:
Harri Natunen, Chief Executive Officer
Saila Miettinen-Lähde, Deputy CEO / Chief Financial Officer
Pekka Erkinheimo, Chief Commercial Officer
Kari Vyhtinen,
Chief Investment Officer
Eeva Ruokonen, Chief Sustainability
Officer
Maija Kaski, Chief Human Resources Officer
Mikko Korteniemi, Chief Production Officer (Bioheapleaching and
Metals Recovery)
Jari Voutilainen Chief Mining Officer
(Mining and Materials Handling).
Shares and
shareholders
The number of shares issued and outstanding
and registered on the Euroclear Shareholder Register as of 30 June 2012 was
272,309,640. Including the effect of the EUR 85 million convertible bond of 14
May 2008, the EUR 225 millio