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Talvivaara Mining Company Interim Management Statement for the fourth quarter and year ended 31 December 2013


February 28, 2014 - London

Stock Exchange Release
Talvivaara Mining Company Plc
28 February 2014

Talvivaara Mining Company Interim Management Statement for the fourth quarter and year ended 31 December 2013

Talvivaara's corporate reorganisation proceedings commenced

Highlights of Q4 2013

  • Nickel production of 1,559t and zinc production of 4,179t
  • Production impacted by a four week stoppage at the metals recovery plant in November-December,  due to dilute leach solutions which rendered production uneconomical
  • Bioheapleaching of the new ore heaps progressed in line with best ever heaps historically, enabling significant improvement in solution grades following the metals plan stoppage
  • Mining and materials handling (crushing, stacking, reclaiming) operations suspended in November for the time being due to the Company's tight financial situation
  • Talvivaara Mining Company Plc and its operating subsidiary Talvivaara Sotkamo Ltd applied for corporate reorganisation on 15 November 2013, and the reorganisation proceedings of the two companies commenced on 29 November 2013 and 17 December 2013, respectively

Highlights of 2013

  • Nickel production of 8,662t and zinc production of 17,251t
  • Water balance challenges impacted production throughout the year as a consequence of flooding of the existing ore heaps and inactivation of the bioheapleaching process in them
  • Ore production temporarily suspended from September 2012 to mid-May 2013; after re-start, record levels of output in mining and materials handling were achieved
  • New heaps stacked since the re-start of mining in May performed well and started contributing to metals production in Q4 2013
  • EUR 261 million rights-issue completed in April 2013; cash-burn thereafter higher than anticipated due to the prolonged impact of water on production and weak nickel prices

Highlights of Q1 2014 to date

  • Year-to-date nickel production of 2,047t and zinc production of 3,638t until 27 February 2014
  • Current month nickel production through 27 February 1,225t of nickel and 1,991t of zinc;
    current February will be the best production month since August 2012 
  • Metals plant operating uneventfully with daily nickel production amounting to 45-55t and nickel grade in leach solution currently at around 1.5-1.6g/l
  • Ore production remains suspended until further financing is secured

Guidance for 2014
Talvivaara's operational outlook in 2014 is dependent on the success to completion, timing and extent of the short term financing transactions currently being negotiated. In the absence of a committed financing solution and related operational plan for the time being, Talvivaara is not yet in a position to give guidance on its production or its operational and capital expenditure for the current year.

CEO Pekka Perä comments: "The past year was a very challenging period for us due to the prolonged inhibiting effect of water on our bioleaching process and the persistently low nickel price since last spring. As these two factors severely impacted our cash-flows, and as substantial efforts and spending also went to managing our water balance and its environmental impact, our financial situation deteriorated such that we were forced to apply for corporate reorganization in November. The reorganization proceedings are now on-going both for Talvivaara Mining Company Plc and its operating subsidiary, Talvivaara Sotkamo Ltd, and we are working, together with the court appointed administrator, towards finding the short as well as the long term financing solutions for the Group going forward.  

 

Whilst our nickel production only amounted to 8,662 tonnes in 2013 and we ended the year having had to suspend our mining and materials handling functions for the time being, there are also some clear positives to be noted. Most importantly, our new ore heaps, primary heaps 1 and 4, are performing very well and started contributing to our metals production in the fourth quarter. The nickel grade in solution pumped to the now steadily operating metals plant has risen from less than 1g/l in November to around 1.5-1.6g/l currently, demonstrating that the technology works well when the heaps are constructed and managed properly - a lesson we have learned after having struggled with poorly functioning heaps and excess water over the last two years. Along with the improved metal grades, a clear proof of active leaching is also the temperature of the solution coming out of the heaps: last winter the solution temperature went down to 6C, while this year the lowest temperatures have remained above 20*C.

 

It also deserves to be noted that before suspending the mining and materials handling operations in November, we broke all monthly production records in these two functions and were able produce ore at annualized capacities of around 18 million tonnes, corresponding to more than 40,000 tonnes of nickel contained, for several months in a row.

 

Excess water and risks related to it was one of our key focus areas throughout 2013, and although long term solutions to the water balance will continue requiring more work, we did manage to reduce the risk level through increased recycling of process waters and treatment and discharge of some 5.7 million cubic meters of water from the mine area. A recent test to our water management capabilities was the unusually mild month of December, during which practically all snow melted, and approximately one fourth of the typical annual rainfall fell in the area. Since December, the situation has stabilized and we anticipate being able to manage the forthcoming spring melt with our existing water management systems. However, we are implementing further improvements to our reverse osmosis water treatment capacity and storage volumes in order to reach a sustainable water balance in all conditions in the future.

 

For our long term future, our most important target in the near term is to secure sufficient funds to allow us to re-start our re-claiming and mining operations. Having these two functions operational helps us in our water management efforts and creates the foundation on which we can again continue ramping up our production in anticipation of volume based cost benefits as well as improving nickel prices.

 

Now that our corporate reorganization proceedings and re-financing efforts are ongoing, we have had to lay off part of our personnel for the time being, and all our employees have had to endure uncertainty over the future of their jobs and Talvivaara's operations. Whilst I strongly believe in the long term viability of the Talvivaara mine, I am also sincerely grateful for our personnel's commitment through these challenging times and look forward to seeing their efforts carry the operation into a stable and profitable future."

 

Enquiries:

Talvivaara Mining Company Plc Tel. +358 20 712 9800
Pekka Perä, CEO
Saila Miettinen-Lähde, Deputy CEO and CFO

INSTINCTIF Partners Tel. +44 207 457 2020
David Simonson
Anca Spiridon

Conference call 28 February 2014 at 12.00 noon GMT / 2.00 pm EET

Participant - Finland: +358 (0)9 2313 9201
Participant - UK: +44 (0)20 7162 0077
Participant - US: +1 334 323 6201

Conference id: 942119

Nickel market remained weak for most of 2013

In 2013, the nickel market was impacted by oversupply and relatively weak demand. Having traded at around USD 17,000-18,000/t for the first two months of the year, the nickel price declined down to below USD 14,000/t in June and stayed around the same level for the remainder of the year, averaging at USD 14,000/ for the second half of the year.

Whilst nickel demand in China continued to play a significant part in the nickel market and nickel price development throughout the year, a particularly important role was played by production of the Indonesian nickel containing iron ore which is used to make a ferronickel product called Nickel Pig Iron ("NPI"). The NPI production has grown steadily over the recent years and was estimated at some 460,000 tonnes in 2013, measured by nickel content, which represents approximately 24 per cent of the global nickel supply. The majority of the NPI is used for the production of stainless steel in China, and over the last few years, the marginal cost of nickel production from NPI has fallen substantially as a result of technical development. This has made NPI a cost-efficient source of nickel for China and in part contributed to the weak nickel price development during the past year. However, on 12 January 2014, the Indonesian government implemented a ban on unprocessed NPI ore exports, which may have a substantial impact on nickel supply, the average marginal cost of nickel production, and nickel price in the future. Whilst the impact is not anticipated to be immediate, e.g. due to reportedly large NPI stocks in China, the market outlook towards the end of 2014 and beyond is cautiously more optimistic than still at the end of 2013.

Global primary nickel consumption grew slightly during 2013, and Chinese consumption was at approximately 850,000 tonnes representing approximately 45 per cent of the global market. On the supply side, global primary nickel supply amounted to 1.9 million tonnes in 2013, leaving the market at a surplus of approximately 100,000 tonnes. (Source: Reuters,INSG)

The EUR/USD exchange rate showed an increasing trend towards the end of the year having traded at around 1.30 during the spring and moving up to around 1.37 by the end of the year. Whilst the strengthening of the Euro reflected in part the subsiding of the Eurozone crisis, it exacerbated the impact of the weak US dollar nickel price on Euro cost based producers such as Talvivaara.

Review of operations

Q4 2013
Nickel and zinc production in Q4 2013 amounted to 1,559t and 4,179t, respectively. Production was limited due to the low leach performance from the two old heaps (primary heaps 2 and 3) while two new heaps (primary heaps 1 and 4) were being brought into operation, but not yet at their peak performance. Heap 4 started positively contributing to nickel production at the end of October and heap 1 reached positive contribution at the beginning of December. Both heaps showed good ramp up, with performance in line with best ever leaching results.

The production output was also impacted by an approximately four-week shut down of the metals plant in November-December. The stoppage was taken to address the nickel grade in the leach solution, which had depleted to levels which made operation of the metals recovery plant uneconomical. The shut-down allowed the leach solution grade to increase as the two new heaps increased in grade, and by the time the plant restarted, nickel grade in solution had increased from 0.7g/l to 1.3g/l. The nickel grade in solution pumped to the metals plant has since continued to rise despite high production rates from the new heaps.

Significant effort was made during the period to improve the leaching performance of heaps 2 and 3. These heaps have struggled to operate since 2012 when heavy rains resulted in the heaps flooding and the leach reaction practically stopping. Acid addition to the heaps was increased to help modify pH and return the heaps to better leach conditions. Modifications to the surface of the heaps were also made and aeration pipes re-opened to improve solution percolation and aeration. Some of these actions showed promising short term gains but the improvements were not sufficient to justify continued additional costs of the actions taken.

Due to the financial situation of the Company, all mining and materials handling operations were suspended from 13 November 2013. Prior to the suspension, mining and materials handling operated well during the quarter, with new records being achieved for mined tonnes, and tonnes crushed. Just prior to the suspension, significant improvements had also been made in reclaiming allowing major bottlenecks in the process to be identified and removed.

Q1 2014 up to 27 February
As a result of the improved grades in leach solution from the new primary heaps 1 and 4, the nickel grade in solution pumped to the metals plant has risen to around 1.5-1.6g/l currently. The metals plant has operated steadily during the early part of 2014 and is currently producing 45-55t of nickel on a daily basis. The year-to-date production through 27 February 2014 has totalled 2,047t of nickel and 3,638t of zinc. The current month production through 27 February 2014 has amounted to 1,225t of nickel and 1,991t of zinc, making this February the best production month since August 2012.

The cost efficiency of production at the metals plant has significantly improved as a result of the higher metal grades in solution as well as the substantially higher temperature of the leach solution compared to the winter of 2013. The increased solution temperature, around 20°C this winter vs. 6°C the year before, reflects the high level of chemical and biological activity in the new primary heaps 1 and 4.

Mining and materials handling remain suspended for the time being, with re-start planned for Q2 2014 but subject to securing sufficient further financing.

Full year 2013
Talvivaara closed the year having produced 8,662t of nickel (2012: 12,916t) and 17,251t of zinc (2012: 25,867t). Over the course of 2013, Talvivaara's operations continued to be impacted by water balance issues stemming from the heavy rains of 2012 and the gypsum pond leaks of November 2012 and April 2013; hence one of the key areas of activity was to establish measures to purify and release excess waters captured at the mine area. Ore production re-commenced in mid-May 2013 after having been suspended from September 2012 due to excess water in the open pit. After successful operation from May to November, ore production was again suspended, this time for financial reasons. Metal grades in the bioleaching solutions suffered from the prolonged effects of water on the old heaps and decreased through most of the year until the newly stacked ore started to contribute to production in the fourth quarter. Metals recovery plant operation and availability improved steadily through the year without any extended stoppages relating to unexpected equipment failures.

Mining and materials handling produced 7.4Mt and processed 7.6Mt of ore (2012: 8.7Mt), and mined 3.1Mt of waste (2012: 5.3Mt) in 2013 during the six months from May to November that these functions were operational. A record production level of 1.66Mt per month was achieved in October before the operation was suspended. The amount of nickel in the ore stacked to leaching in October was 4,064t. The step change seen in the productivity, quality and capacity of mining and materials handling was achieved through stricter grade control, increased cut-off grade, enhancement of the agglomerate quality control, focus on unit costs, and de-bottlenecking of the reclaiming operation.

In bioheapleaching the average nickel grade through the year was 0.97g/l.Special attention was paid to various operational measures to enhance the performance of the existing heaps and to ensure outstanding start-up of the new heaps. Significant improvement compared to the previous year was achieved with the new heaps, whereas the actions to improve the operation of the old heaps 2 and 3 proved not to be cost efficient enough. The well performing new heaps, which cover approximately 40 per cent of the total primary leaching area, together with the secondary leaching, enabled the realized increase in metals production at the year end and going into 2014.

In metals recovery, plant stability and availability continued to improved compared to previous years. De-bottlenecking actions were successfully executed allowing leach solution flow rate to increase up to 1,750m3/h. The average feed flow rate for the entire year was 1,142 m3/h.  Unexpected process or equipment related downtime was approximately one week through the entire year, proving maturity of the processing technology.  

The challenging water balance situation continued throughout the year 2013. Additional storage and purification capacity was built for stored contaminated waters and reverse osmosis units were commissioned mid-2013 for purifying circulated water for metals recovery plant usage.  

 

 

Production key figures

Q4
2013
Q4
2012
FY
2013
FY
2012
Mining
Ore production Mt 1.6  - 7.4 8.7
Waste production Mt 0.9 1.2 3.1 5.3
Materials handling
Stacked ore Mt 1.7  - 7.6 8.7
Bioheapleaching
Ore under leaching Mt 51.8 44.3 51.8 44.3
Metals recovery
Nickel metal content Tonnes 1,559 2,317 8,662 12,916
Zinc metal content Tonnes 4,179 4,106 17,251 25,867

Financial status and going concern

On 10 October 2013, the Company announced that, as the market price of nickel had declined by more than 20 per cent since the first quarter of 2013 and as Talvivaara's production had continued to be impacted by the prolonged effects of excess water on older ore heaps, Talvivaara's liquidity position had weakened more than anticipated. In addition, on 7 November 2013, Talvivaara announced in its interim report for the nine months ended 30 September 2013 that it was in advanced discussions with certain stakeholders concerning a financing solution that would address Talvivaara's current liquidity needs. On 15 November 2013, the Company announced that it had become evident as a result of such discussions that additional liquidity would not be available for Talvivaara as part of a voluntary restructuring. Therefore, the Company and its operating subsidiary Talvivaara Sotkamo applied for a corporate reorganisation on 15 November 2013 by filing related applications with the district court of Espoo, Finland. The district court of Espoo took the decision to commence a corporate reorganisation process in respect of the Company on 29 November 2013 and in respect of Talvivaara Sotkamo on 17 December 2013.

As at 31 December 2013, Talvivaara had cash and cash equivalents amounting to EUR 5.9 million. As a result of cash generated from nickel and cobalt sales since then, and the cost savings made by restricting operations, the Company has been able to continue operations for the time being. However, in the absence of further funding, the Company's liquidity situation remains critical. Talvivaara is, together with the Administrator, in active discussion with certain parties regarding bridge funding and will inform the markets about the progress in due course. In addition, the Company is also in discussions with certain parties regarding a long-term financing solution for Talvivaara

As also stated in connection with the Company's Q3 2013 results, the directors have in the current circumstances concluded that there exists a material uncertainty that casts significant doubt upon the Company and Talvivaara Sotkamo's ability to continue as a going concern and that, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

Anticipated impairment charges in FY 2013 accounts

Deferred tax assets
Talvivaara has continued to recognise deferred tax assets on its consolidated balance sheet through Q3 2013 and the amount of deferred tax assets recognized on tax loss carryforwards as at 30 September 2013 amounted to EUR 136.5 million (31 December 2012: EUR 103.8 million). In its Q3 2013 interim results, the Company announced having reviewed the past operational challenges which have led to lower than expected production and profitability levels at the Talvivaara mine. It was further noted that if Talvivaara generates future taxable profits lower than those assumed by the management in determining the amounts of the recognized deferred tax assets, the assets may become impaired, either in part or in full. Accordingly, the amounts recognized on the balance sheet could be reversed through profit and loss.

Having now undertaken a review of the amount of deferred tax assets recognized on tax loss carryforwards, the management has, due to the historical losses of the mine project, the experienced delays in the ramp-up process and the current financial situation of the Company, concluded that it will de-recognize deferred tax assets in the amount of EUR 80.5 million in its FY 2013 results, leaving the Company with a zero net deferred tax position.

Despite the de-recognition of the deferred tax assets, subject to Talvivaara obtaining sufficient financing to continue the ramp-up of its operations, the Group may be able generate sufficient taxable profits so that all of the deferred tax assets could be utilized in the future.

Potential impairment of inventory and property, plant and equipment
Talvivaara is currently reviewing the valuation of its inventories, and its property, plant and equipment. The management sees is likely that substantial impairments to these will be made in the Company's FY 2013 results.

Progress of corporate reorganisation

Upon deciding to commence the reorganisation proceedings of the Company and Talvivaara Sotkamo on 29 November 2013 and 17 December 2013, respectively, the district court of Espoo appointed Mr. Pekka Jaatinen, Attorney-at-Law, from Castrèn & Snellman Attorneys Ltd. to act as the Administrator for both processes.

On 17 January 2014, the District Court of Espoo, Finland, issued a ruling in respect of certain deadlines in connection with the Company's and Talvivaara Sotkamo's respective corporate reorganisations. According to the Court's ruling, reports on the financial status of both companies have to be completed by 28 March 2014, and proposals for their respective reorganisation plans must be submitted by the Administrator by 28 May 2014. Furthermore, the District Court of Espoo, Finland, has appointed creditor committees in connection with the corporate reorganisations of the Company and Talvivaara Sotkamo, which will act as the joint representatives of the creditors in the reorganisation proceedings. Various creditor groups, including secured creditors, other debt financiers, as well as business partners and subcontractors essential for the operations of both companies, will be represented in the creditor committees appointed by the Court. The creditor committees of the Company and Talvivaara Sotkamo shall each have the same composition.

Financing and commercial arrangements

Uranium off-take agreement with Cameco
In February 2013 Talvivaara entered into an amendment agreement with Cameco. Under the agreement the amount of the up-front investment that Cameco is to pay to Talvivaara for the construction of the uranium extraction facility was increased by USD 10 million to USD 70 million, and the duration of the amendment agreement extended to 31 December 2017 and commercial terms revised accordingly. Cameco paid the additional up-front payment in February 2013.

Zinc streaming agreement with Nyrstar
On 14 February 2013, Talvivaara Sotkamo entered into an amendment agreement with Nyrstar regarding the zinc in concentrate streaming agreement pursuant to which Nyrstar made an additional 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 up-front payment was received in February 2013.

Share issue pursuant to the shareholders' pre-emptive subscription right
On 8 March 2013, an Extraordinary General Meeting of Talvivaara Mining Company resolved to approve the proposal by the Board of Directors to authorise the Board of Directors to undertake a share issue for consideration pursuant to the shareholders' pre-emptive subscription right. The share issue was finalised in April and all 1,633,857,840 new shares offered in the rights issue were subscribed for. The gross proceeds amounted to approximately EUR 261 million and the total number of shares in Talvivaara Mining Company increased to 1,906,167,480 shares.

Geology

In early 2013 Talvivaara undertook a project to update its ore reserves estimates and anticipated announcing the new reserves during the second half of 2013. However, due to the Company's prioritization of the use of human resources and funds during the course of 2013 and currently, the finalization of the reserves has been postponed for the time being. Talvivaara notes, however, that the mineral resources in Talvivaara remain at above 2 billion tonnes of ore, and that the short to medium term mine plan is not impacted by the delay in updating the ore reserves.

Sustainable development, safety and permitting

Sustainable development and the environment
Water management continued to be in focus at Talvivaara also in 2013. A specific water management organization was established for the purpose and also a temporary assignment, Project Otter, was established to deal with the acute water balance situation. One of the key targets of Project Otter was to separate rain and run-off waters from contaminated waters to minimize the amount of waters having to be treated prior to discharge. In 2013 the Company succeeded in substantially reducing the catchment area by new dams, trenching and pumping stations. Through the reduction of the catchment area, e.g. the amount of run-off waters that accumulated in the Kortelampi dam during the spring melt was also significantly decreased. In total, some 5.7 million cubic meters of treated waters were discharged from the mine area in 2013.

Subsequent to the earlier leak in Talvivaara's gypsum pond in November 2012, a new leak in it occurred on 7 April 2013. In total approximately 400,000 cubic meters of water was leaked. The leak was blocked within 24 hours of its start and no leakage waters escaped outside the mining area, as all of the waters were caught in emergency ponds and dams. The location of the leak was in an adjacent section to the section that leaked in November 2012. The risk level related to the water stored in the gypsum pond has since the leak been lowered by reducing the amount of water in the pond. Currently, there is still approximately one million cubic meters of excess water in gypsum pond section 5 and 6. Neutralisation of this water commenced during the autumn of 2013, and in compliance with the request by the relevant authorities, the excess water will be removed from the gypsum pond by the early autumn of 2014.

During the summer and autumn of 2013, the emergency volumes of the bioheapleaching circulation were substantially increased as a result of effective evaporation from the heaps. The emergency volumes in the heap circulation decreased again towards the end of 2013 due to the unseasonal rains and melting of snow in December, which resulted in approximately 1.2 million cubic meters of additional water in the mining area. In order to alleviate the situation and to secure sufficient emergency volumes, Talvivaara had to remove water from the heap circulation and store a total of some 141,000 cubic meters of raffinate, the metals plant return solution, in the open pit which still contains also waters stored there in 2012. The emergency volumes in leach circulation reduced again due to freezing of the irrigation system in the poorly functioning primary heaps 2 and 3 in January 2014, resulting in the Company having to pump another approximately 167,000 cubic meters of raffinate partly to the open pit and partly to the empty solution ponds of the uranium recovery plant. In addition to the raffinate, some 176,000 cubic meters of solution, which contained dilute secondary heap leach solution and run-off waters from the waste rock area, was pumped into the open pit, as the raffinate discharge alone did not remove enough water from the heap circulation. Talvivaara will treat the waters stored in the open pit along with other excess waters in accordance with the requirements set in its environmental permit.

Talvivaara reached a significant milestone in its water management, when in October 2013 a closed circuit of process waters at the metals plant was achieved. As a result of the closed circuit, the plant can in normal circumstances be operated without additional raw water intake and use the water produced by the reverse osmosis units.

As a result of investments made already in the previous years, the odour discharges relating to hydrogen sulphide and dust emissions from the mining operations have been clearly within the permitted limits. This has been evident also from the reduced number of related notices by the neighbours. In 2013, odour inducing concentrations decreased further by approximately 30 per cent and the odour related notices made by the neighbouring residents reduced by 60 per cent.  

In 2013 the International Nickel Institute conducted an international life cycle analysis of nickel, covering almost all western world nickel producers. According to the study, Talvivaara's climate and environmental impact as well as energy consumption per ton of nickel produced are clearly below the average of the nickel industry. Due to the energy efficient process used by the Company, Talvivaara's greenhouse gas emissions are 39 per cent and the usage of primary energy 21 per cent lower than those of the average nickel producer. Talvivaara's sulphur dioxide emissions are only 2 per cent of the average of all nickel producers.

Talvivaara has since 2010 had a certified ISO 14001 standard compliant environmental management system. The Company is also preparing for the implementation of ISO 9001 standard compliant quality and OHSAS 18001 compliant occupational health and safety management systems. Certification of these systems is anticipated to be sought in 2015.

Safety
With respect to safety issues Talvivaara's goal is a safe and healthy working environment. The Company is committed to continuously improving its process, product and occupational safety. In 2013 Talvivaara focused on the improvement of the entire organisation's safety culture.

In the autumn of 2013, an independent safety consultant, DuPont, conducted an initial evaluation of Talvivaara's safety culture. Talvivaara will develop its operations in the future based on the improvement proposals made by DuPont, and the evaluation along with the improvement plans will help Talvivaara in its pursuit towards its zero accident target.

The injury frequency in 2013 was 30.4 lost time injuries/million working hours (2012: 16.6 lost time injuries/million working hours).

Permitting
At the end of May 2013, Talvivaara received from the Northern Finland Regional State Administrative Agency ("AVI") an environmental permit decision relating to the storage, treatment and discharge of waters to the Oulujoki and Vuoksi water systems. The permit decision contains regulations pertaining to, amongst others, treatment and storage of waters and permit limits for discharges into downstream water ways. The permit decision removes the annual 1.3 million cubic meters discharge quota for purified waste waters, which has in part caused the accumulation of excess waters at the mine site. The permit conditions pertaining to maximum concentrations of harmful substances, among others sulphate, and maximum discharge flow rate will however restrict the volume of discharged waters in the future.

The permit decision required the Company to direct the water contained in the existing gypsum ponds to neutralisation or back to leach solution circulation by 31 October 2013. The Vaasa Administrative Court subsequently extended the deadline until the end of 2013. After this, the Company applied for and obtained permission from the AVI for a two-staged emptying schedule such that section 5 of the gypsum pond should be void of excess water by the end of January 2014, and section 6 by the end of August 2014. Prior to the end of January, Talvivaara notified the Kainuu Centre for Economic Development, Transport and the Environment ("Kainuu ELY-Centre") of its inability to comply with the interim deadline of January, however stating that the Company believes the final emptying deadline for the entire pond to be achievable. After this, the Kainuu ELY-Centre has requested section 5 of the gypsum pond to be emptied of excess water and the Kortelampi dam to be arranged sufficient emergency volume for all waters currently contained in the gypsum pond by 1 April 2014. Talvivaara has, in turn, noted to the ELY-Centre that the requested timetable is not technically feasible and that a realistic deadline would rather be 15 May 2014.

The renewal of Talvivaara's environmental and water permit and the environmental permit application for uranium extraction are being processed at the AVI. The Company expects decisions on both permits during the spring of 2014.

Following the corporate reorganization applications of Talvivaara Mining Company Plc and Talvivaara Sotkamo Ltd, the Supreme Administrative Court returned the uranium extraction permit originally granted in 2012 for reassessment by the Finnish Government. Whilst the timetable for the reassessment is currently not known, this has no impact on the processing of and decisions by AVI relating to the environmental permit for uranium extraction.

Risk management and key risks

In line with current corporate governance guidelines on risk management, Talvivaara carries out an on-going 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.

During 2013, the Company's focus was on developing its hazardous risk management and contingency planning. As a result, a new risk register for environmental, safety and accident risks was introduced. Contingency planning focused primarily on hazard risks such power failure and dam or pond leakages.

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.

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. In the second half of 2013, the liquidity and refinancing risks realized as a result of persistent production problems relating to excess water, and due to a substantial fall in the nickel price. As a result, Talvivaara and its operating subsidiary Talvivaara Sotkamo Ltd. were unable to obtain new financing and applied for corporate reorganization, which for the two companies commenced on 29 November 2013 and 17 December 2013, respectively. Going forward, Talvivaara's key financial and operational risks relate to the on-going corporate reorganisation proceedings and Talvivaara's ability to obtain sufficient additional funding to continue its operations and to return to the planned ramp-up of production.

Operationally, the Company has to date demonstrated that all of its production processes work and can be operated on industrial scale, however 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 rates of metals recovery in bioheapleaching. In addition, the return to production ramp-up remains subject to further financing for the time being and there may also 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.

Personnel

Talvivaara's headcount decreased somewhat from the previous year and was 549 at the end of 2013 (2012: 588). At the end of 2013, 87.1 per cent (2012: 88.1 per cent) of Talvivaara's employees were men and 12.9 per cent (2012: 11.9 per cent) were women. The average age of Company's employees was 37.9 years (2012: 37.8 years).

The challenges of 2013 year were also reflected on the Company's employees. During the year Talvivaara adjusted its headcount to the prevailing production, first in February and again in July by temporary lay-offs affecting part of the personnel. As the Company's financial condition continued to weaken, Talvivaara applied for corporate reorganization in November and started its third set of co-operation consultations for the year. These were concluded in the beginning of January 2014 and as a result, Talvivaara decided to lay-off gradually 246 employees for undefined period to support the reorganization process.

The salaries and wages of Talvivaara's personnel are based on industry-wide collective agreements. The total compensation consists of base salary and short and long term incentive schemes. Annual short term incentive metrics include personal performance and company-wide criteria. The Company's long term incentive schemes comprise Talvivaara's Stock Options 2007, Stock Options 2011 and Group personnel fund to manage the earnings bonuses paid by Talvivaara. In addition, the management holding company Talvivaara Management Oy is owned by executive management and certain other key employees.

Corporate governance statement

Talvivaara issues its Corporate Governance Statement of 2013 and publishes it on the Company's website at www.talvivaara.com on 27 March 2014, in connection with the announcement of its full-year 2013 financial results.

Key events during the first quarter of 2014 to date

Participation in Fennovoima nuclear power project
Talvivaara announced on 21 February 2014 its support for the Fennovoima nuclear power project, but noted that in the current circumstances the Company focuses all its financial resources on the Sotkamo operation and the ongoing corporate reorganization process. Therefore Talvivaara gives no commitment at the moment for the additional funding of the Fennovoima project. Once further clarity into the Talvivaara situation is obtained and the reorganization process proceeds, the Company can reassess its ability to finance the Fennovoima project.

 

Changes in Talvivaara Management
Lassi Lammassaari, M.Sc. (Environmental Engineering) has been appointed Chief Corporate Development Officer as of 27 February 2014. He will be leading a new Corporate Development function, which will be focusing on industrial engineering, planning and development. Lassi Lammassaari has held several positions at Talvivaara since 2005, most lately as Senior Vice President - Projects. He will be a member of the Executive Committee and will report to in this new position to CEO Pekka Perä.

 

Short-term outlook

Market outlook
The LME nickel price has shown some recovery since the implementation of the Indonesian NPI ore export ban in January 2014, moving from levels clearly below USD 14,000/t to around USD 14,300/t recently. The still remaining NPI stocks in China and the supply surplus that is anticipated to persist on the market during the current year are likely to continue weighing on the nickel price in the coming months such that substantial further price movements are not expected. However, a cautiously more optimistic view towards the end of the year could be taken, provided the Indonesian ore export ban stays in force and the nickel price starts subsequently reflecting the increasing marginal cost of production across the nickel industry and lack of new committed nickel projects to replace depleting supply after the next few years.

 

Operational outlook
The operational outlook for Talvivaara is greatly dependent on the success to closing, timing and extent of the short as well longer term financing solutions currently under negotiation. With the Company's liquidity position allowing, the key operational priority is to start reclaiming old primary heaps 2 and 3 as soon as possible, preferably in the beginning of Q2 2014 at latest. Moving these heaps to the secondary pad will allow the so far poorly leached ore to be reconditioned and for leaching to be restarted. There is significant unleached nickel in these two heaps, which will improve production in the coming months prior to leaching from any newly mined and stacked ore can start contributing to production. The Company plans to re-start mining in June, provided sufficient financing is in place at the time. Operationally, Talvivaara believes the pre-requisites for continued production ramp-up to be in place with substantial improvements having been made over the recent months in bioheapleaching, as well as in mining and materials handling prior to their suspension in November. Furthermore, the metals plant is currently operating uneventfully.

Environmentally, Talvivaara's key focus is on managing the overall site water balance. Firstly, this means continued reduction of the overall catchment area at the site to minimise the amount of precipitation and run-off waters needing treatment prior to release. Secondly, the most important water management actions also include maximising the operation of the reverse osmosis water purification units and minimizing the amount of fresh water needed within the operation under any operating conditions. Thirdly, the Company targets at managing its process to be able to discharge all new precipitation entering the site as well as reducing the volume of legacy waters still contained on site, thereby reducing the overall water balance of the mine area.   

28 February 2014

Talvivaara Mining Company Plc
Board of Directors

Talvivaara Interim management statement Q4 and FY 2013



This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Talvivaaran Kaivososakeyhtiö Oyj via Globenewswire

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