Stock Exchange Release
Talvivaara Mining Company Plc
14
February 2013
Talvivaara Mining
Company annual results review for the year ended 31 December 2012
Production and
operations impacted by water balance situation
Financing arrangements
to secure liquidity for continued ramp-up to full capacity
Highlights of Q4 2012
Nickel
production of 2,317t and zinc production of 4,106t
Production impacted by gypsum pond leakage in
November and continuing challenging water balance situation throughout the
fourth quarter
Metals plant
operations stabilized following leakage
Pekka Perä returned as CEO in November 2012
Further increase in total Mineral Resources
announced in November 2012; updated resources contain an estimated 3.0Mt of
nickel in Measured and Indicated categories confirming Talvivaara's long mine
life
Highlights of
2012
Nickel
production of 12,916t and zinc production of 25,867t
Heavy rainfall and rapid spring melt aggravated
water balance situation and impacted production throughout the
year
Ore production temporarily
suspended since September 2012; anticipated cost savings have been
realized
Continued improvement in
equipment utilization rates and availabilities across processes
A number of measures have been taken to manage
the water balance in the future, including a new water recycling system and
investments in reverse osmosis technology; over the medium term, the Company
continues to target a nearly closed water circulation system
Highlights after the reporting
period
Kainuu ELY
Centre has on 12 February 2013 decided to allow Talvivaara to pursue the
treatment and release of excess waters from the mine area; mining operations
expected to re-commence in July 2013
Temporary lay-offs of 184 employees between 18 February and 30
June 2013 to support Talvivaara's cost saving initiatives
Promising development in production
processes:
All-time record average flow-rate of 1,422 m3/h through the metals
plant in January
98% process
availability of the metals plant in January
Strong evidence of leaching performance quickly improving in heap
sections from which excess water has been removed
Actual year-to-date nickel production of 1,448t
until 12 February
Financing arrangements
Talvivaara has sought a number of financing
arrangements to de-risk the Company's balance sheet, secure liquidity for the
continued ramp-up of operations towards full capacity and provide an appropriate
capital structure to enable repayment or refinancing of short- and medium-term
indebtedness.
The financing transactions consist of:
Underwritten
rights issue to raise approximately EUR 260 million in gross proceeds
Renegotiated EUR 100 million
revolving credit facility
Increase of advance payment from Cameco by USD 10 million to USD
70 million
EUR 12 million
up-front payment from Nyrstar
The financing transactions are described in more detail in the
corresponding Stock Exchange Release published simultaneously with this
announcement and a Shareholder Circular expected to be published in the
afternoon of 14 February 2013 on Talvivaara's website, www.talvivaara.com.
Guidance for 2013
Talvivaara anticipates producing
approximately 18,000t of nickel and 39,000t of zinc in 2013. Metals production
will continue to be impacted by the water balance issues in the first half of
the year, but is expected to return to a clear ramp-up during the remainder of
the year driven by the re-start of ore production in July. The operational
expenditure including leasing for 2013 is estimated at approximately EUR 230
million, including EUR 10-15 million budgeted for the treatment and release of
excess waters from the mine area. Capital expenditure is anticipated to amount
to EUR 60 million, including approximately EUR 20 million to be spent in water
management with the target of reaching a sustainable water balance situation at
the mine site.
Key figures
EUR million
Q4
2012
Q4
2011
FY
2012
FY
2011
Net
sales
25.7
66.5
142.9
231.2
Operating profit (loss)
(57.0)
14.9
(83.6)
30.9
% of net sales
(221.9%)
22.5%
(58.5)%
13.4%
Profit (loss) for
the period
(59.4)
3.7
(103.9)
(5.2)
Earnings per share, EUR
(0.22)
0.01
(0.38)
(0.04)
Equity-to-assets ratio
24.3%
27.9%
24.3%
27.9%
Net interest
bearing debt
563.8
455.7
563.8
455.7
Debt-to-equity ratio
183.8%
141.3%
183.3%
141.3%
Capital expenditure
29.6
21.6
97.5
79.1
Cash and cash equivalents at the end of the
period
36.1
40.0
36.1
40.0
Number of employees at the end of the period
588
461
588
461
All reported figures in this release
are audited.
CEO Pekka Perä
comments: "We have today announced a holistic
financing arrangement to de-risk Talvivaara's balance sheet and significantly
improve our liquidity position. The challenges encountered over the past year
have resulted in production shortfalls, and combined with a weak nickel price
environment, resulted in the need to raise additional capital. Through the
measures announced today, we are both securing Talvivaara's liquidity position
as we resolve our remaining operational challenges, but also put in place a more
appropriate capital structure for the longer term as we resume the ramp-up of
production.
Our fundamental strengths
and opportunities remain unchanged. Talvivaara's current resources contain an
estimated 4.5 million tonnes of nickel, sufficient to support decades of
operations. We have proven that the bioheapleaching process works as expected,
provided that it is managed optimally, and a number of process and
organizational changes have been implemented to ensure delivery of consistent
and improved leaching results. Our clear vision remains for Talvivaara to become
a Finnish mining champion of considerable international significance. Talvivaara
also plays an important role for the Kainuu region in Finland, and we employed
close to 600 people at the end of 2012 with significant additional benefits
through contractors and follow-on effects. The announced capital raise is
critical to secure resources to achieve our vision for Talvivaara, and continue
to create growth in Finland and the local region in particular.
Notwithstanding our
longer-term targets, near-term challenges remain that we are addressing. The
water balance situation caused by a year of historically heavy rainfall and
rapid snow melt had a material impact on our production in 2012, and ultimately
culminated in the gypsum pond leakage in November. We expect to continue to see
the water balance issues impacting our production in the coming months, and our
nickel production target of 18,000 tonnes for 2013 reflects a more material
production ramp-up only during the second half of the year. We are taking a
number of measures to implement a sustainable longer-term water balance with the
target of operating a closed circuit, but this will take some time. On 12
February we received a key decision from the monitoring authority allowing the
discharge of purified excess water from the mine site, which is a central next
step to moderate the water balance and lower operational risk levels. While the
discharged waters are neutralized of metals and harmful substances, regrettably
some sulphate remains expected to cause a temporary increase in the sulphate
content of the nearest lakes.
Our disappointing financial
result for the year, and in particular for the fourth quarter, mirrors the
lower-than-expected production and EUR 23 million of costs and provisions for
the gypsum pond leakage and water balance management measures. Further, the
nickel price environment was relatively weak throughout the year, with nickel
recording the weakest performance across base metals. Whilst the backdrop of a
rapidly unfolding European economic crisis and the prospect of weakening demand
from China depressed market sentiment in 2012, we remain confident of the
long-term trajectory for nickel driven by rapid production cost escalation
across the industry.
Finally, during the fourth
quarter I returned as CEO to work alongside the management team and all of our
employees as we overcome Talvivaara's near-term challenges. I would like to take
this opportunity to thank everyone at Talvivaara for their considerable
dedication and our shareholders for their on-going support."
Enquiries:
Talvivaara Mining Company Plc
Tel. +358 20 712 9800
Pekka Perä, CEO
Saila Miettinen-Lähde, Deputy CEO and CFO
College Hill Tel. +44 20
7457 2020
David Simonson
Anca Spiridon
Finnish language
press conference on 14 February 2013 at 10:00 GMT / 12:00 EET
A Finnish language press conference on the
annual results and financing arrangements will be held on 14 February 2013 at
10:00 GMT / 12:00 EET at G.W. Sundmans (auditorium), Helsinki, Finland.
English language
presentation and live webcast on 14 February 2013 at 11:30 GMT / 13:30 EET
An English language combined presentation,
conference call and live webcast on the annual results and financing
arrangements will be held on 14 February 2013 at 11:30 GMT / 13:30 EET at G.W.
Sundmans (auditorium), Helsinki, Finland.
The webcast can be
accessed through the following link:
http://qsb.webcast.fi/t/talvivaara/talvivaara_2013_0214_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 6203
Finnish Participants: +358 (0)9 2313 9202
Conference ID:
928245
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 2013.
Talvivaara's fourth quarter
review
Metals production stabilized after the
gypsum pond leakage
Talvivaara produced 2,317t of nickel (Q4
2011: 4,769t) and 4,106t of zinc (Q4 2011: 10,524t) in the fourth quarter of
2012. Metals production was impacted by the gypsum pond leakage in November and
the continuing challenging water balance situation throughout the quarter.
On 4 November, Talvivaara announced that it
had detected a leakage in the gypsum pond at the mine. The leakage was located
on 7 November, the majority of it was stemmed during the following days and it
was completely stopped on 14 November. While most of the water that leaked from
the pond was contained within the mining concession area by existing dams and
the newly built fourth safety dam, some of the leakage water was discharged into
the environment while the fourth safety dam was being constructed. Most of the
discharged water was however successfully neutralised with lime to precipitate
metals from it and to increase its pH close to neutral. The metal precipitates
were caught in a swamp area located close to the southern edge of the mining
concession area. Following the leakage, Talvivaara purchased the affected area
in December and commenced measures to remove and treat the contaminated soil.
Talvivaara's metals recovery plant was
temporarily suspended between 4 and 21 November as a precautionary measure due
to the leakage. Since the successful re-start on 21 November, plant performance
continued satisfactory during the remainder of the year. However, some short
term disturbances in the automation systems impacted production in December and
these are being investigated to avoid future re-occurrence. Solution flow rates
at the plant varied from around 800 m3/h to 1,400 m3/h in December
outside of the short-term disturbances.
Bioheapleaching continued to suffer from the
excess water in circulation which has affected the process since the spring of
2012 due to the excessive rainfall experienced. The water balance issues were
further intensified in November by the gypsum pond leakage, which forced the
Company to pump additional excess water into the heap circulation in order to
minimize the environmental effects of the leak. As a result, nickel grades in
solution pumped to metals recovery continued to decline during the fourth
quarter and reached a level of around 1.3 g/l at year-end. However, the Company
estimates it will take some months before substantial improvement in the grades
can be expected.
As previously announced, Talvivaara's ore
production has been suspended since September 2012 due to the prevailing water
balance situation. The Company anticipates re-commencing mining of new ore in
July 2013 once the main part of the Kuusilampi open pit has been de-watered.
While ore production was suspended, some waste mining continued in the fourth
quarter and the mining department produced 1.2Mt of waste rock which was used in
the construction of secondary heap foundations (Q4 2011: 2.0Mt). During the
quarter, the mining fleet was also used in assisting in primary heap reclaiming
and safeguarding measures related to the gypsum pond leakage.
Production key
figures
Q4
2012
Q4
2011
FY
2012
FY
2011
Mining
Ore production
Mt
-
3.2
8.7
11.1
Waste production
Mt
1.2
2.0
5.3
17.0
Materials
handling
Stacked ore
Mt
-
3.2
8.7
11.1
Bioheapleaching
Ore under leaching
Mt
44.3
35.6
44.3
35.6
Metals
recovery
Nickel metal content
Tonnes
2,317
4,769
12,916
16,087
Zinc
metal content
Tonnes
4,106
10,524
25,867
31,815
Financial performance in the fourth quarter of 2012
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 2012 amounted to EUR 25.7 million (Q4 2011: EUR 66.5
million). In addition, Talvivaara commenced production of saleable quantities of
copper sulphide in October and sold its first copper products under spot
arrangements. Net sales decreased by 42.6% compared to Q3 2012 primarily due to
lower production as a result of the gypsum pond leakage and depressed metal
grades in leach solution. Product deliveries in Q4 2012 amounted to 2,183t of
nickel, 70t of cobalt and 8,178t of zinc.
Changes in inventories of finished goods and
work in progress amounted to EUR (6.4) million (Q4 2011: EUR 17.5 million). Due
to discontinued mining and crushing operations no new ore was stacked during Q4
2012 and work in progress increased less in Q4 2012 than during normal
operations. In addition, the inventories of finished goods were reduced due to
year-end reconciliation of the inventory.
The operating loss for Q4 2012 was EUR (57.0)
million (Q4 2011: profit of EUR 14.9 million), corresponding to an operating
margin of (221.9%) (Q4 2011: 22.5%). During the period, materials and services
amounted to EUR (20.0) million (Q4 2011: EUR (37.7) million) and other operating
expenses to EUR (33.4) million (Q4 2011: EUR (13.1) million). Materials and
services and other operating expenses increased by 23.7% compared to the third
quarter of 2012. The increase was primarily due to the costs incurred as a
result of the gypsum pond leakage and water balance management. During Q4 2012,
the costs incurred as a result of the gypsum pond leakage amounted to EUR 1.7
million. Talvivaara has also recognised EUR 12.2 million in provisions for costs
related to the leakage, in particular those anticipated to be incurred in the
clean-up of the land contaminated with metal precipitates, and the treatment and
subsequent discharge of waters stored in the safety dams. A further EUR 9.1
million provision has been recognised for the necessary water storage and
pumping arrangements and waste water neutralization measures to secure a
sustainable water balance at the mine site.
Loss for the period amounted to EUR (59.4)
million (Q4 2011: profit of EUR 3.7 million).
Balance
sheet and financing
Capital expenditure during the last quarter
of 2012 totaled EUR 29.6 million (Q4 2011: EUR 21.6 million). The expenditure
related primarily to the uranium extraction circuit, secondary leaching and pond
and dam structures built to contain the gypsum pond leakage and minimise any
environmental effects. Talvivaara received advance payments of EUR 9.7 million
from Cameco to cover the construction costs of the uranium extraction circuit
during the period.
Base metals prices recovered slightly
towards the end of 2012
Base metals prices reached their lowest
levels during 2012 in the autumn, and recovered slightly towards the end of the
year as macroeconomic concerns started to abate. Nickel closed the year at
approximately USD 17,000/t, and recorded an average of approximately USD
17,400/t for December.
London Metal Exchange ("LME") nickel stocks
increased throughout 2012. The reported December stock level of approximately
138,000 tonnes was the highest since early 2011.
Talvivaara's annual results review
2012
Nickel market impacted by macroeconomic
concerns
In 2012, the nickel market along with other
base metals was impacted by concerns over global macroeconomic growth. Having
started the year at around USD 20,000/t, the nickel price declined to its lowest
monthly average since mid-2009 of approximately USD 15,700/t in August, as the
Eurozone crisis intensified and markets reacted to concerns over lower
commodities demand growth in China in particular. While the nickel price
recovered to USD 17,000-18,000/t by the end of the year, nickel had the weakest
price performance among the base metals complex in 2012.
Global primary nickel consumption grew by 4%
to 1.66 million tonnes during the year, and Chinese consumption totaled 0.77
million tonnes representing approximately 45% of the global market. Chinese
demand growth slowed down to approximately 10% in 2012, as compared to 20% in
2011. (Source: CRU)
On the supply side, global primary nickel
supply amounted to 1.71 million tonnes in 2012, leaving the market at a surplus
of some 46,000 tonnes. China continued to be a significant importer of nickel,
with Chinese consumption exceeding supply by an estimated 0.31 million tonnes.
Delays in the commissioning of several large greenfield nickel projects has
continued to be a pertinent feature of the market. (Source:
CRU)
The EUR/USD exchange rate was largely driven
by unfolding of the Eurozone crisis during the year. The Euro traded at
1.30-1.35 U.S. dollars until the spring, and declined to its 2012 low of
approximately 1.20 U.S. dollars in August before returning to the 1.30-1.35
range by the end of the year.
Production and operations significantly
impacted by water balance situation
Talvivaara closed the year having produced
12,916t of nickel (2011: 16,087t) and 25,867t of zinc (2011: 31,815t). Over the
course of 2012, Talvivaara faced increasing challenges with the water balance at
the mine site, as rapid snow melt in the spring and historically heavy rainfall
in the spring and summer materially increased the amount of excess water that
had been accumulating at the mine site. The challenging water balance forced
Talvivaara to temporarily cease the production of new ore as of September 2012,
diluted metal grades in leach solution leading to reduced metals production and
culminated in the gypsum pond leakage in November 2012.
Talvivaara took steps throughout the year to
manage the excess water on site, starting with the installation in early 2012 of
a new water recycling system reducing the need for raw water intake. In April,
the Company announced that it will invest in reverse osmosis technology for
purification of sulphate containing waters. The first two reverse osmosis units
were subsequently commissioned in November, enabling further increase in process
water recycling and substantial reduction in raw water intake. A third reverse
osmosis line will be installed during the spring of 2013. Despite these
measures, the water balance situation at the mine became increasingly more
challenging as the year progressed, in particular due to rapid snow melt in the
spring and historically heavy rainfall through the summer and early autumn. The
excess water on site and in solution circulation diluted metals grades in leach
solution, thereby impacting metals production. Talvivaara also decided to alter
its near-term production scheme as of September 2012 by temporarily suspending
the production of new ore, as excess water had to be stored in the open pit and
Talvivaara already had a substantial nickel inventory under leaching.
In November, the water balance challenges
culminated in the gypsum pond leakage, where a portion of the excess water on
site had been stored. The leakage, which was discovered on 4 November, was
located on 7 November, the majority of it was stemmed during the following days
and it was completely stopped on 14 November. While most of the water that
leaked from the pond was contained within the mining concession area by existing
dams and the newly built fourth safety dam, some of the leakage water was
discharged into the environment while the fourth safety dam was being
constructed. Most of the discharged water was however successfully neutralised
with lime to precipitate metals from it and to increase its pH close to neutral.
The metal precipitates were caught in a swamp area located close to the southern
edge of the mining concession area. Following the leakage, Talvivaara purchased
the affected area in December and commenced measures to remove and treat the
contaminated soil.
Talvivaara's metals recovery plant was
temporarily suspended between 4 and 21 November as a precautionary measure due
to the leakage. Since the successful re-start on 21 November, plant performance
continued satisfactory during the remainder of the year and became increasingly
stable going into 2013.
In mid-March 2012, Talvivaara experienced a
fatal incident at its metals recovery plant area, caused by a localised,
temporary discharge of excess hydrogen sulphide gas from the metals recovery
process. Following the incident, Talvivaara immediately lowered solution flow
into the metals recovery plant and subsequently also started a maintenance
stoppage, which was prolonged by an unscheduled stoppage with focus on
preventive occupational safety-related modifications and improvements. The
metals recovery plant was re-started by mid-April 2012; however, production 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.
Due to the extended stoppage following the
fatality and the water management issues during the spring and summer,
Talvivaara reduced its nickel production guidance for 2012 from 25,000-30,000t
to approximately 17,000t in August. After the gypsum pond leakage and related
production suspension in November, the Company was again forced to re-assess its
full-year production target, and reduced it to approximately 13,000t of
nickel.
At the departmental level, mining and
materials handling produced and processed 8.7Mt of ore (2011: 11.1Mt) and 5.3Mt
of waste (2011: 17.0Mt) in 2012. The challenging water balance situation started
to impact ore production in the summer, as excess water had to be stored in the
open pit and the production of new ore was temporarily suspended as of September
2012. Despite this, a record level of 1.5 million tonnes of ore was mined and
subsequently crushed in July 2012 and equipment availabilities in materials
handling approached the levels required for full-scale production. During the
suspension of ore production, the mining fleet has been partly mobilized to
assist in primary heap reclaiming, while some waste mining has also
continued.
In bioheapleaching, the excess water in
circulation and reduced evaporation diluted the metal grades in leach solution,
and the high water content in the heaps also negatively affected leaching
performance by reducing the efficiency of aeration. As a result, the average
nickel grade in the solution pumped to the metals recovery plant decreased
throughout 2012, recording slightly below 2 g/l in early 2012, 1.8 g/l in the
second quarter, between 1.5 and 1.6 g/l in the third quarter and 1.3 g/l in the
fourth quarter. Measures to improve the leaching performance are being taken
based on the findings from extensive operational bioheapleaching studies carried
out during the autumn of 2012. Multiple changes are being implemented to ensure
constant and balanced distribution of air within the primary heaps, and
additional aeration into the secondary heaps is being introduced. Attention is
also being paid to agglomeration and the quality and proper distribution of
irrigation solutions. Furthermore, reclaiming and re-stacking of the existing
primary heaps continues in order to enable efficient recovery of the existing
nickel inventory under leaching.
In metals recovery, progress continued to be
made throughout 2012 in increasing utilization rates and maintaining stability.
The average flow rate at the plant reached around 1,500 m3/h for several
periods and Talvivaara expects ramp-up to 1,600 m3/h in the near
future. The stability of hydrogen sulphide production also improved following
thorough maintenance of both hydrogen sulphide plants during the year and focus
on the quality of the sulphur feed. Further, the overall improved process
control helped in minimising the odour discharges such that noticeable odour
discharges are now only associated with process disturbances, or start-up or
shut-down phases relating to production stoppages.
Construction of the uranium recovery plant
progressed according to plan during the year, with completion rate at close to
100% at year-end. Talvivaara also commenced production of saleable quantities of
copper sulphide in October 2012. For the time being, the product is being sold
under spot arrangements.
Financial review
Net sales
and financial result
Talvivaara's net sales for nickel and cobalt
deliveries to Norilsk Nickel and for zinc deliveries to Nyrstar during 2012
amounted to EUR 142.9 million (2011: EUR 231.2 million). Net sales decreased by
38.2% compared to 2011 mainly due to lower deliveries and the lower nickel
price. Production was impacted by the challenging water situation at the mine
throughout the year, the fatality at the metals recovery plant area in March and
the gypsum pond leakage in November. Product deliveries amounted to 12,641t of
nickel, 29,256t of zinc and 355t of cobalt (2011: 15,795t of nickel, 35,935t of
zinc, 400t of cobalt).
The Group's other operating income amounted
to EUR 4.1 million (2011: EUR 2.3 million) and mainly consisted of indemnities
on losses and fair value gains on biological assets.
Materials and services were EUR (117.8)
million in 2012 (2011: EUR (135.0) million) and other operating expenses were
EUR (81.2) million (2011: EUR (55.2) million). The largest cost items were
production chemicals, external services, electricity and maintenance. The costs
of the gypsum pond leakage and water balance management measures amounted to EUR
23.0 million, including provisions.
Employee benefit expenses were EUR (28.1)
million (2011: EUR (25.5) million). The increase was attributable to the
increased number of personnel.
The operating loss for 2012 was EUR (83.6)
million (2011: profit of EUR 30.9 million). The operating margin for 2012 was
(58.5%) and was in particular affected by the water balance challenges and
gypsum pond leakage in November (2011: 13.4%).
Finance income for 2012 was EUR 0.8 million
(2011: EUR 1.2 million) and consisted mainly of exchange rate gains. Finance
costs of EUR (46.5) million (2011: EUR (39.1) million) mainly resulted from
interest and related financing expenses on borrowings.
The loss for the 2012 amounted to EUR (103.9)
million (2011: EUR (5.2) million) reflecting the challenging nickel price,
elevated costs due to the water balance challenges and gypsum pond leakage and
lower than anticipated level of product deliveries. Earnings per share was EUR
(0.38) (2011: EUR (0.04).
The total comprehensive income for 2012 was
EUR (103.9) million (2011: EUR (14.6) million). In 2011, it included a reduction
in hedge reserves resulting from the occurrence of the hedged sales.
Balance
sheet
Capital expenditure in 2012 totaled EUR 97.5
million (2011: EUR 79.1 million). The expenditure related primarily to the
uranium extraction circuit, earthworks in secondary leaching and secondary heap
foundations and the dam and pond structures constructed due to the gypsum pond
leakage. In addition, major investments were made in environmental technology
toimprove the quality of effluent waters and limit dust emissions. On the
consolidated statement of financial position as at 31 December 2012, property,
plant and equipment totaled EUR 809.5 million (31 December 2011: EUR 762.0
million).
In the Group's assets, inventories amounted
to EUR 297.8 million on 31 December 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. The
temporary alteration to the near-term production scheme also affected the amount
of inventories in the second half of 2012. The inventories of finished goods
were reduced due to year-end reconciliation of the inventory.
Trade receivables amounted to EUR 32.2
million on 31 December 2012 (31 December 2011: EUR 64.0 million). The trade
receivables decreased due to the suspension of metals production in connection
with the gypsum pond leakage, which led to reduced product deliveries to
customers during the last quarter of 2012.
On 31 December 2012, cash and cash
equivalents totaled EUR 36.1 million (31 December 2011: EUR 40.0 million).
In equity and liabilities, total equity
amounted to EUR 306.8 million on 31 December 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 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 599.8 million at the end of December 2012. The
changes in borrowings during 2012 mainly resulted from the issue of a senior
unsecured bond of EUR 110 million, a draw-down of EUR 20 million from 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 31 December 2012
amounted to EUR 273.7 million, representing an increase of EUR 26.5 million from
EUR 247.3 million on 31 December 2011. During 2012, Talvivaara received a total
of EUR 32.1 million in advance payments from Cameco based on the uranium
off-take agreement between the companies, whilst the advance payment from
Nyrstar was amortised by EUR 5.6 million as a result of zinc deliveries.
Total equity and liabilities as at 31
December 2012 amounted to EUR 1,260.8 million (31 December 2011: EUR 1,156.7
million).
Financing
In June, Talvivaara's EUR 130 million
revolving credit facility was amended. In December, Talvivaara requested and was
granted a covenant holiday from the banks. In addition, the total commitments of
the revolving credit facility were reduced to EUR 100 million. As at 31 December
2012, EUR 70 million of the facility was drawn.
In April and May, Talvivaara conducted a
buy-back for a portion amounting to a nominal value of EUR 8 million of the
Company's senior unsecured convertible bonds due 2013. The remaining 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 in the Finnish Trade Register.
Going concern
The Group's financial statements for the
financial year 2012 have been prepared on a going concern basis taking account
of the Group's on-going financing transactions, production forecasts and
financial projections, and reasonably possible changes in production, metal
prices and foreign exchange rates.
The Group has experienced a number of
operational challenges in 2012, the prevailing water balance issues are
continuing to impact production, and the recent nickel price environment has
been weak. The Group is taking a number of measures to overcome its near-term
operational challenges, but the full effect of these actions will only
materialise over several months. Therefore, the Board believes that the Group
must secure additional funds in order to be able to finance its operations and
to repay its debts over the coming 12 months.
In order to address its liquidity situation,
the Group has taken measures to reduce its costs and improve its overall
efficiency, including temporarily suspending ore production since September 2012
and undertaking temporary layoffs due to the suspension of ore production.
Further, the Company has renegotiated its EUR 100 million revolving credit
facility and entered into an amended facility agreement on 14 February 2013,
which, among other things, amended the financial and production covenants in the
previous facility agreement to be more appropriate for the Group's current
operations and, therefore, reduces the Company's risk in relation to compliance
with its covenants. The amended facility remains subject to certain conditions
subsequent, including the completion of the proposed rights issue discussed
below and the Company receiving net proceeds therefrom of at least EUR 240
million by 30 April 2013.
To improve its liquidity and capital
structure, the Company is also undertaking a rights issue. In connection with
the proposed rights issue, the Company has on 14 February entered into a standby
underwriting letter with banks, pursuant to which the banks have undertaken to
underwrite, subject to certain conditions, such portion of the proposed rights
issue that is not subject to shareholder commitments. The Company's three key
shareholders have given their irrevocable commitments to subscribe in total
31.06 per cent of the proposed rights issue, which the Board is confident will
be able to raise approximately EUR 260 million in gross proceeds. Proceeding
with and completion of the rights issue remains subject to shareholder approval
at an Extraordinary General Meeting to be held on 8 March 2013.
In order to ensure that the Group has
sufficient liquidity until the Company receives the proceeds from the proposed
rights issue, Talvivaara Sotkamo has on 12 February 2013 entered into an
amendment agreement with Cameco concerning the uranium take-in-kind agreement
pursuant to which the amount of the up-front investment that Cameco is to pay to
Talvivaara Sotkamo for the construction of the uranium extraction facility was
increased by USD 10 million to USD 70 million, and the duration of the agreement
extended to 31 December 2017 and commercial terms revised accordingly. In
addition, Talvivaara Sotkamo has on 14 February 2013 entered into an amendment
agreement with Nyrstar regarding the zinc in concentrate streaming agreement
pursuant to which Nyrstar is to make an up-front payment of EUR 12 million to
Talvivaara Sotkamo in return for Talvivaara Sotkamo agreeing not to charge
Nyrstar the EUR 350 per tonne extraction and processing fee on the next 38,000
tonnes of zinc in concentrate delivered to Nyrstar as was agreed in the original
zinc in concentrate streaming agreement.
The Board believes that taking into account
receipt of the proceeds of the proposed rights issue and subject to the
conditions subsequent under the amended facility agreement having been
satisfied, the Group has sufficient working capital for its present purposes,
that is for at least 12 months from the date of these financial statements.
Business development and commercial
arrangements
Planned uranium extraction
and uranium off-take agreement with Cameco
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). Talvivaara's
entire uranium production will be sold under a long-term agreement to Cameco.
Following receipt of the construction permit
in August 2011, Talvivaara commenced construction of the uranium recovery
facility, which was close to completion at the end of 2012. The permitting
process for uranium production is on-going 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 the first
half of 2013 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 year, with a
particular emphasis on permitting and the on-going 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 and are unlikely to be taken in the
near term.
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 in 2012. The Company is also studying, amongst others,
on-site windpower production, bioenergy and utilization of energy generated in
the production process.
Geology
Talvivaara updated its total Mineral
Resources estimation in November 2012. The total Mineral Resources, as defined
by the JORC code, increased by 32% to 2,053Mt from the total of 1,550Mt
announced in October 2010. The increased resources contain 4.5Mt of nickel and
10.3Mt of zinc, up from 3.4Mt and 7.6Mt in 2010, respectively. Contained nickel
and zinc in the Measured and Indicated categories amount to 3.0Mt and 6.6Mt,
respectively. Talvivaara's current total Mineral Resources are presented in the
table below.
Category
Year
Mt
Nickel
%
Cobalt
%
Copper
%
Zinc
%
Uranium
%
Measured
2012
504.0
0.23
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