Market News Talvivaara Mining Company Interim Report for January-September 2011 |
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STOCK EXCHANGE RELEASE Talvivaara Mining Company Interim Report for January-September 2011 Highlights Q3 2011
Q1-Q3 2011
Highlights after the reporting period
All reported figures in this release are unaudited. CEO Pekka Perä comments: "As we announced in our latest operational update, we continued to face reliability and availability issues at our metals recovery plant during the third quarter. Production was hurt particularly by problems in hydrogen sulphide generators, which suffered from the lack of critical spare parts and could only be operated at an overall capacity utilisation level of around 35% during the quarter. While both of our hydrogen sulphide generators have been back in operation since mid-October, we expect to keep running them below full capacity to avoid any further disruptions until a sufficient spare parts inventory has been received, expected by the year-end. Whilst we are naturally disappointed by the ongoing production constraints, we are however pleased to note that we have already demonstrated that all of our processes can be run at design capacities. Despite the production issues, we achieved a solid financial result for the quarter. The significant improvement in net sales compared to the previous quarter reflected deliveries of nickel left in inventory at the end of Q2, and we recorded an operating profit of EUR 5.5 million. We have also strengthened our liquidity position by signing the amended EUR 130 million revolver, as well as establishing an up to EUR 100 million commercial paper programme. During the third quarter, conditions in the financial and commodity markets became increasingly volatile and challenging with the nickel price closing the quarter at around USD 17,500 per tonne, which is its 2011 low point. While a degree of confidence on the commodity markets has been restored in recent weeks, we have responded to the challenges created by the market environment as well as our own production constraints by developing a revised short term operating plan. We are currently focusing on maximising the profitability of our operations rather than the production volume. Our financial position remains solid, however we have already taken action to defer some capital expenditure into 2012 and to optimise our operations to realise operating cost savings. Going forward, we remain as committed as ever to a successful ramp-up of our operations. While all the processes are in place for full-scale production, further progress is needed with optimising our operations and implementing a robust management systems infrastructure. Already, we are seeing a clear improvement in the personnel morale and attitude, and I can only express my sincerest gratitude for the efforts of our employees in addressing the most acute production issues during the last few months. As part of Talvivaara`s transformation from a project to an operating entity, I have decided to retire from active executive duties and increasingly focus on shaping our strategy as a member of the Board of Directors. I am also committed to retaining my shareholding in the company. We have an experienced and established management team in place to lead Talvivaara forward, and have commenced the search for a new CEO." Enquiries: Talvivaara Mining Company Plc. Tel. +358 20 712 9800 Merlin PR Tel. +44 20 726 8400 Webcast and conference call on 9 November 2011 at 12:00 GMT/14:00 EET A combined webcast and conference call on the January-September 2011 Interim Result will be held on 9 November 2011 at 12:00 GMT/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_2011_1109_Q3/ A conference call facility will be available for a Q&A with senior management following the presentation. Participant - Finland: +358 (0)9 2313 9201 Conference id: 891450 The webcast will also be available for viewing on the Talvivaara website shortly after the event. Financial review Q3 2011 (July-September) 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 three months ended 30 September 2011 amounted to EUR 60.6 million (Q3 2010: EUR 45.1 million). Net sales increased by 61.0% compared to the previous quarter, mainly as a result of substantial nickel and cobalt deliveries having been delayed from Q2 2011 into Q3 2011 due to a maintenance stoppage at Norilsk Nickel Harjavalta. Product deliveries during the period amounted to 4,586 tonnes of nickel, 126 tonnes of cobalt and 8,848 tonnes of zinc. Change in inventories of finished products and work in progress amounted to EUR 2.6 million (Q3 2010: EUR 20.9 million), with the small increment for the quarter reflecting the recovery of the unusually large finished product inventories of nickel and cobalt at the end of the previous quarter. Materials and services during the third quarter amounted to EUR (29.1) million (Q3 2010: EUR (26.9) million), and other operating expenses to EUR (12.3) million (Q3 2010: EUR (11.0) million). Costs were at a slightly lower level compared to the previous quarter, reflecting the lower production volume. On the other hand, the cost level was increased by maintenance costs relating to the issues with the hydrogen sulphide generators as well as improvements to the primary heap reclaiming system. Operating profit for Q3 2011 was EUR 5.5 million (Q3 2010: EUR 10.9 million), and loss for the period amounted to EUR (3.4) million (Q3 2010: profit of EUR 5.1 million). Statement of financial position and financing Capital expenditure for the quarter totalled EUR 22.0 million (Q3 2010: EUR 36.9 million). The expenditure related primarily to the construction of secondary heap foundations and a gypsum pond, as well as to pressure filters acquired for drying of the zinc product. In September, the Finnish State completed the redemption of the Talvivaara-Murtomäki railroad and reimbursed Talvivaara Infrastructure Ltd for the construction expenses of the railroad. The total reimbursement amounted to EUR 40 million (VAT 0%), of which EUR 20 million had been paid in June 2010 and the remaining EUR 20 million in September 2011. In conjunction with the final reimbursement, the railroad became property of the Finnish State and part of the national rail network. Subsequently, Talvivaara repaid the EUR 18.7 million term loan used to finance the construction of the railroad as well as interest subsidy loans amounting to EUR 4.2 million. Also in September, Talvivaara entered into receivables factoring agreements amounting to a total combined factoring credit limit of EUR 100 million. In August, Talvivaara entered into a commercial paper notes programme of up to EUR 100 million with Nordea Bank, Sampo Bank and Svenska Handelsbanken. On 30 September 2011, the outstanding commercial paper notes amounted to a nominal value of EUR 10 million. Q1-Q3 2011 (January-September) Net sales and financial result Talvivaara`s net sales during the nine months ended 30 September 2011 amounted to EUR 164.7 million (Q1-Q3 2010: EUR 91.9 million). Product deliveries during the period totalled 11,136 tonnes of nickel (Q1-Q3 2010: 5,614t), 24,266 tonnes of zinc (Q1-Q3 2010: 14,610t), and 266 tonnes of cobalt (Q1-Q3 2010: 47t). The Group`s other operating income amounted to EUR 2.6 million (Q1-Q3 2010: EUR 17.2 million), primarily relating to indemnities on a damaged drilling rig and transformers, gain on the sale of the railroad, and fair value gains on derivatives. Materials and services during the nine months ended 30 September 2011 amounted to EUR (97.3) million (Q1-Q3 2010: EUR (68.3) million). The increase reflected the increased level of production, whilst the largest cost items were consumables, external services and production chemicals, particularly propane and lye (caustic soda). Employee benefit expenses including the value of employee expenses related to the employee share option scheme of 2007 were EUR (19.1) million (Q1-Q3 2010: EUR (14.4) million). The increase was attributable to the increased number of personnel. Other operating expenses amounted to EUR (42.6) million (Q1-Q3 2010: EUR (30.2) million). Energy and maintenance costs comprised over two thirds of the total. The impact of maintenance costs was particularly high in the second quarter of 2011 due to the maintenance and upgrading programmes carried out in April-May. Operating profit amounted to EUR 16.0 million (Q1-Q3 2010: EUR 11.1 million), representing an operating margin of 9.7% for Q1-Q3 2011. Finance income for the nine month period was EUR 1.0 million (Q1-Q3 2011: EUR 6.9 million), which mainly consisted of interests on bank accounts and exchange rate gains. Finance costs of EUR (27.8) million (Q1-Q3 2010: EUR (27.0) million) primarily related to interest and financing expenses on borrowings. As further explained in Note 6 to this Q3 2011 interim report, Talvivaara has reclassified the US dollar denominated Nyrstar advance payment as a non-monetary liability from Q3 2011 onwards. As a result of the reclassification, foreign exchange rate gains and losses in finance income and costs have decreased, and relevant financial information for prior periods since Q1 2010 has been restated accordingly. The Company`s loss for the period amounted to EUR (8.9) million (Q1-Q3 2010: EUR (6.9) million). Total comprehensive income for the nine month period was EUR (16.3) million (Q1-Q3 2010: EUR (15.4) million), including a reduction in hedge reserves resulting from the occurrence of the hedged sales. Statement of financial position Capital expenditure during Q1-Q3 2011 totalled EUR 57.6 million (Q1-Q3 2010: EUR 92.2 million). The expenditure primarily related to construction of secondary heap foundations, a gypsum pond and the uranium extraction circuit. On the consolidated statement of financial position as at 30 September 2011, property, plant and equipment amounted to EUR 751.4 million (31 December 2010: EUR 728.2 million). In the Group`s assets, inventories amounted to EUR 225.0 million on 30 September 2011 (31 December 2010: EUR 175.4 million). The increase in inventories reflected the ramp-up of production and the consequent increase in the amount of ore stacked on heaps, valued at cost. Trade receivables amounted to EUR 47.6 million on 30 September 2011 (31 December 2010: EUR 52.4 million). The 88% increase in trade receivables compared to EUR 25.4 million on 30 June 2011 reflected the higher level of nickel and cobalt deliveries during the third quarter, resulting from the recovery of the inventories accumulated at the end of Q2 2011 due to a maintenance stoppage at Norilsk Nickel Harjavalta. On 30 September 2011, cash and cash equivalents totalled EUR 38.6 million (31 December 2010: EUR 165.6 million). In equity and liabilities, total equity amounted to EUR 320.2 million on 30 September 2011 (31 December 2010: EUR 385.6 million). In June, Talvivaara acquired an additional 4% shareholding in its subsidiary Talvivaara Sotkamo Ltd from Outokumpu Mining Oy, increasing Talvivaara`s ownership in Talvivaara Sotkamo from 80% to 84%. As a result of the acquisition, equity decreased by EUR 61.5 million as the acquisition price of EUR 60 million and the transaction costs of EUR 1.5 million were deducted from equity under IFRS. On the other hand, the equity component of EUR 9.0 million for the senior unsecured convertible bonds due 2015 was recognised in equity during the period. A total of 465,085 new shares were subscribed and paid for during Q1-Q3 2011 under the company`s stock option rights 2007A and 2007B and the convertible bonds due 2015, with the entire subscription price recognised in equity. Borrowings decreased from EUR 480.6 million on 31 December 2010 to EUR 448.7 million at the end of September 2011. The changes in borrowings during the period included determination of the equity component for the senior unsecured convertible bonds due 2015, issuance of EUR 10 million of commercial paper notes and repayment of the railroad loan and interest subsidy loans. Total advance payments as at 30 September 2011 amounted to EUR 242.1 million (31 December 2010: EUR 259.9 million). The changes in advance payments during Q1-Q3 2011 consisted of the reclassification of the Nyrstar advance payment as a non-monetary liability, recognition of the advance payment for the railroad as revenue, EUR 7.0 million in advance payments from Cameco Corporation under the uranium off-take agreement as well as amortization of the Nyrstar advance payment. The reclassification of the Nyrstar advance payment as a non-monetary liability better reflects the financial nature of the transaction, as the advance payment is repaid through physical deliveries and therefore there is no actual foreign exchange risk. The effects of the reclassification on deferred tax assets, equity, advance payments, profit/loss, and earnings per share for the relevant periods are further described in Note 6 to this interim report. The restatement does not have any impact on the operating earnings or cash flows of prior periods. Total equity and liabilities as at 30 September 2011 amounted to EUR 1,114.4 million (31 December 2010: EUR 1,214.5 million). Financing In September, Talvivaara received EUR 20 million from the Finnish State as the final redemption amount for the Talvivaara-Murtomäki railroad. Subsequently, Talvivaara repaid the EUR 18.7 million term loan used to finance the construction of the railroad as well as interest subsidy loans amounting to EUR 4.2 million. Also in September, Talvivaara entered into receivables factoring agreements amounting to a total combined factoring credit limit of EUR 100 million. In August, Talvivaara established a commercial paper notes programme of EUR 100 million. On 30 September 2011, the outstanding commercial paper notes amounted to a nominal value of EUR 10 million. In February, Talvivaara signed a uranium off-take agreement with Cameco Corporation. According to the terms set forth in the agreement, Cameco is to provide an upfront investment of up to USD 60 million to cover the construction costs of the uranium extraction circuit at the Talvivaara mine. Talvivaara will repay the investment through deliveries of uranium concentrate during the initial years of the agreement. Once the capital has been repaid, all uranium concentrate produced thereafter until 31 December 2027 will be bought by Cameco at a price based on market prices at the time of delivery. As at 30 September 2011, Talvivaara had received a total of EUR 7.0 million in advance payments from Cameco. In January, an Extraordinary General Meeting of Talvivaara resolved to approve the proposal of the Board of Directors for the issue of special rights in relation to EUR 225 million senior unsecured convertible bonds due 2015 which were issued in December 2010. The bonds are convertible into 27.0 million fully paid ordinary shares of the Company. The interest rate applied to the convertible bond is 4.00% and the yield to maturity 6.50%, reflecting a redemption price of 114.5% at maturity. Currency option programme In June 2011, Talvivaara entered into a currency option programme comprising USD options for six months from July 2011 through December 2011. The monthly obligation amounts to USD 7.5 million and protection to USD 5.0 million. As at 30 September 2011, the remaining collar ranges from EUR/USD ratio of 1.2884 to 1.4900. Production review During the third quarter, Talvivaara`s production was constrained by problems in hydrogen sulphide generators. Because hydrogen sulphide is an essential reagent in the metals recovery process, the unforeseen downtime in the generators had a direct impact on Q3 2011 production output, which for nickel amounted to 3,153 tonnes and for zinc to 7,286 tonnes. Year-to-date production at the end of September amounted to 11,319 tonnes (Q1-Q3 2010: 6,550 tonnes) of nickel and 21,291 tonnes (Q1-Q3 2010: 16,092 tonnes) of zinc. In metals recovery, primary focus during the quarter continued to be on improving the reliability and availability of the overall process, in particular the hydrogen sulphide plants. Both of Talvivaara`s hydrogen sulphide generators were serviced and upgraded during the second quarter. Following the maintenance, the generators functioned well, but the operating procedure followed in the hydrogen sulphide process subsequently proved more wearing to certain heating elements than previous experience would have suggested. Talvivaara`s spare parts inventory consequently proved insufficient, and given the long lead times of the required specialty steels, the hydrogen sulphide generators and therefore the entire metals recovery process had to be operated significantly below full capacity. The overall capacity utilisation of the hydrogen sulphide generators was only around 35% during the quarter. The mining department continued to operate without material disturbances. The department produced 3.0Mt of ore (Q3 2010: 3.4Mt) and 4.5Mt of waste (Q3 2010: 5.4Mt). Emphasis during the period shifted increasingly towards ore mining, as primary heap reclaiming improved and was no longer restricting ore production for most of the quarter. In materials handling, the earlier commissioning issues in primary heap reclaiming were largely addressed during the third quarter. As a result of the modifications made to the reclaiming equipment during Q2 2011, the feeding of ore into the system and overall availability of the process improved significantly during the third quarter. Additionally, more of Talvivaara`s own staff and equipment as well as additional contractor resources were allocated to the process. Due to the measures taken, reclaiming of the primary heap is no longer a bottle-neck to the stacking of new ore and the entire materials handling process now operates at a satisfactory level. Crushing and stacking of ore in Q3 2011 amounted to 3.0Mt (Q3 2010: 3.4Mt), and during Q1-Q3 2011 to 7.9Mt (Q1-Q3 2010: 10.4Mt). Bioheapleaching continued to progress according to plan during the third quarter, with the main sources of leach solution being primary heap sections 3 and 4. Nickel recovery from heap section 3 has reached around 65% in the slightly over a year that the heap has been in production, with heap section 4 following a similar pattern. During the third quarter, the average nickel grade in solution pumped to metals recovery was stable between 2.0-2.5 g/l. The newly stacked primary heap section 1 was completed in September and has, along with the secondary heap, been taken into production during the fourth quarter, enabling a further ramp-up of production. Leaching in both the new heap section 1 and the secondary heap is progressing well. Production key figures Sustainable development and permitting Environment Environmental monitoring during the third quarter confirmed Talvivaara to comply with all of its environmental permit limits for water emissions. As a result of continued process improvements in metals recovery and other environmental investments, sulphate, sodium and manganese discharges to nearby lakes have continued to decrease. Hydrogen sulphide (odour) emissions to air have also remained within the permitted limits, apart from briefly exceeding them during the third quarter due to the unstable running rate of the overall metals recovery process. Dust emissions have been addressed through watering systems on mine area roads, dust removal systems particularly in the crushing and screening areas, and modifications to the mining process. Dust emissions have been within permitted limits in all but one measurement point at the screening building. Talvivaara is committed to minimizing the environmental effects of its mining operations, and targets at setting the bar in environmentally sustainable mining. Permitting Talvivaara submitted an application for the renewal of the existing environmental permit to the regional environmental permitting agency in March. Talvivaara continues to augment the application. In June 2011, Talvivaara submitted to the Ministry of Employment and Economy an application in accordance with the Mining Act (503/1965) for the expansion of the Talvivaara mining concession area by approximately 70 km2. Subject to approval of the expansion, the total area of the Talvivaara mining concession will be approximately 130 km2. The expansion of the mining concession area relates to the previously announced increase in the Talvivaara mineral resources, the full exploitation of which is not possible within the existing mining concession area. Baseline studies of the environment and preparations for the Environmental Impact Assessment relating to the potential production expansion (Operation Overlord) and the expansion of the mining concession area continued during the third quarter. In March 2011, Talvivaara submitted the environmental permit application for uranium extraction to the regional environmental permitting agency, with the decision on the permit expected during Q2 2012. In April 2010, Talvivaara applied to the Ministry of Employment and Economy for a permit to extract uranium as a by-product, in accordance with the Nuclear Energy Act. Processing of the permit application at the Ministry of Employment and Economy is ongoing and Talvivaara expects to obtain this permit in early 2012. Safety At the end of the third quarter, the injury frequency among the Talvivaara personnel was 13.9 lost time injuries/million working hours on a rolling 12 month basis (31 December 2010: 10.7 lost time injuries/million working hours). Planned uranium extraction and uranium off-take agreement with Cameco Corporation In February, Talvivaara signed a uranium off-take agreement with Cameco Corporation. Under the terms of the agreement, Cameco will provide an up-front investment, up to a maximum of USD 60 million, to cover the construction costs of the uranium extraction circuit and related facilities. Cameco`s capital contribution will be repaid through deliveries of uranium concentrate in the initial years of the agreement. Once the capital is repaid, Cameco will purchase the uranium concentrate produced at Sotkamo through a supply agreement that will be in effect until 31 December 2027. Cameco will provide Talvivaara with payment for the uranium based on a formula that references market prices at the time of delivery. Annual uranium production is estimated at 350tU (ca. 770,000 pounds), corresponding to approximately 410t (900,000 pounds) of yellow cake (UO4). Cameco is providing technical assistance to Talvivaara in the design, construction, commissioning and operation of the uranium extraction circuit to be constructed at the Sotkamo mine. The agreements between Talvivaara and Cameco are subject to ratification by the Euratom Supply Agency and the approval of the European Commission pursuant to the Euratom Treaty. These approvals are expected in late 2011. During the third quarter, the construction permit for the uranium recovery facility was received, and construction work commenced. Commissioning of the facility, subject to receiving the necessary permits and authorizations, is expected during the second half of 2012. Production expansion - Operation Overlord Conceptual studies relating to production expansion beyond 50,000tpa of nickel continued. The dedicated project team consists of nine members with metallurgical, infrastructure, bioheapleaching, materials handling and project coordination expertise. Scoping studies are currently based on the target of doubling up 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. Production of cobalt metal is also an option, but refining of zinc to zinc metal is currently not within the planning scope. For certain products and raw materials, e.g. manganese and sulphuric acid, joint ventures or other partnering arrangements will be investigated. Investment into the expansion project is planned to be carried out in a modular fashion to allow stretching of the expenditure over an estimated 5-6 year period starting in 2013. The modular approach also allows commissioning of the equipment and processes sequentially in the order of the process stages, which is expected to reduce the risk of serious start-up issues. Acquisition of an additional 4% shareholding in the operating subsidiary Talvivaara Sotkamo Ltd from Outokumpu Mining Oy Talvivaara Mining Company signed an agreement on 1 June 2011 with Outokumpu Mining Oy and its parent company Outokumpu Oyj to acquire an additional 4% shareholding in Talvivaara Sotkamo Ltd. As a result of the acquisition, Talvivaara`s ownership in Talvivaara Sotkamo increased from 80% to 84% and Outokumpu Mining`s ownership decreased to 16%. The acquisition price for the 4% stake was EUR 60 million. Simultaneously, Talvivaara entered into an exclusive option agreement with Outokumpu Mining Oy and Outokumpu Oyj (the "Option") whereby it will have the right, at its sole discretion, in one or more installments, to acquire Outokumpu Mining`s remaining 16% shareholding in Talvivaara Sotkamo for EUR 240 million at any time prior to 31 March 2012. Should Talvivaara choose to exercise the Option, entirely or partially, it will consider appropriate funding arrangements for the payment of the exercise price at that time. Redemption of the Talvivaara-Murtomäki railroad by the Finnish State In 2008-2009, Talvivaara constructed a 25 km railway connecting the Talvivaara mine with the national railway grid. Subject to agreed minimum transportation volumes on the railroad being achieved, the Finnish State agreed to reimburse the construction expenses to Talvivaara Infrastructure Ltd up to an amount of EUR 40 million (0% VAT) in two instalments and to redeem the railroad as part of the national rail grid. The first agreed transportation milestone was reached in 2010 and the Finnish State subsequently paid EUR 20 million in June 2010 as a partial reimbursement. The remaining minimum transportation volumes were reached in January 2011, and the Finnish State paid the remaining EUR 20 million in September 2011. In conjunction with the final reimbursement, the railroad became property of the Finnish State and part of the national rail network. Inclusion of Talvivaara Mining Company in the OMX Helsinki 25 index Talvivaara was included in the OMX Helsinki 25 index of the Helsinki Stock Exchange from 1 August 2011. Annual General Meeting Talvivaara`s Annual General Meeting was held on 28 April 2011 in Sotkamo, Finland. The resolutions of the AGM included:
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 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 an industrial scale, the rate of ramp-up is still subject to risk factors, including various technical and operational risks, that may currently be unknown or are beyond the Company`s control. In order to better mitigate operational risks going forward, Talvivaara has in place an ongoing production reliability programme, which targets at reducing downtime and risk of accidents through detailed evaluation of all equipment and processes and subsequent improvement of operating procedures and maintenance. The Company is also undertaking a detailed evaluation of management systems at the operational level and a concomitant performance improvement programme. The market price of nickel is, together with production volumes, the main determinant of Talvivaara`s revenues. The volatility of nickel price has historically been high and the volatility is in the Company`s view likely to persist also in the future. Talvivaara is unhedged against variations in nickel prices, which means that nickel price volatility will have a substantial effect on the Company`s revenues and results. Full or substantially full exposure to nickel prices is in line with Talvivaara`s strategy and supported by the Company`s view that it can operate the Talvivaara mine profitably also during the lows of commodity price cycles. Talvivaara`s revenues are determined mostly 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 currency exchange risk relating 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 The number of personnel employed by the Group on 30 September 2011 was 446 (Q3 2010: 370). Wages and salaries paid during the three months to 30 September 2011 totalled EUR 4.9 million (Q3 2010: EUR 3.8 million). Wages and salaries paid during the nine months to 30 September 2011 totalled EUR 16.2 million (Q1-Q3 2010: EUR 12.2 million). As part of the Group`s long term incentive plan, the employees of Talvivaara resolved on 18 June 2011 to establish 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. Registration of the fund is pending at the Ministry of Employment and Economy. Shares and shareholders The number of shares issued and outstanding and registered on the Euroclear Shareholder Register as of 30 September 2011 was 245,781,803. Including the effect of the EUR 85 million convertible bond of 14 May 2008, the EUR 225 million convertible bond of 16 December 2010 and the Option Scheme of 2007, the authorised full number of shares of the Company amounted to 290,636,391. The share subscription period for stock options 2007A is between 1 April 2010 and 31 March 2012 and for stock options 2007B between 1 April 2011 and 31 March 2013. By 30 September 2011 a total of 340,586 Talvivaara Mining Company`s new shares had been subscribed for under the stock option rights 2007A and a total of 1,992,514 stock option rights 2007A remain unexercised. A total of 48,763 new shares of Talvivaara were subscribed for under the stock option rights 2007B and a total of 2,284,337 stock option rights 2007B remain unexercised. In addition, a total of 214,736 new shares of the Company were subscribed for under the convertible bonds due 2015. As at 30 September 2011, the shareholders who held more than 5% of the shares and votes of Talvivaara were Pekka Perä (23.0 %), Varma Mutual Pension Insurance Company (8.6%), Ilmarinen Mutual Pension Insurance Company (5.7%) and Solidium Oy (5.1%).
Events after the review period Operational and Management update On 7 October 2011, Talvivaara announced a revised operating plan and strategic decision to focus on maximising profitability of operations rather than the production volume over the remainder of 2011, in response to the heightened volatility and uncertainty in the commodity and financial markets. During Q4 2011, savings will be sought by deferring approximately EUR 10 million of capital expenditure into 2012, as well as minimizing the use of contractors and optimizing the scale of mining operations. Based on the short-term foreseen availability of the metals recovery plant, the Company also rebased its full year 2011 production guidance to a minimum of 16,000t of nickel. Simultaneously, Talvivaara announced a number of measures to address the improvement requirements of the management systems applied at the Company. Effective as of 1 October 2011, the production organization has been restructured into two operating divisions: the ore processes, i.e. mining and materials handling, and the metals processes, i.e. bioheapleaching and metals recovery. The management systems at the operational level are addressed through a detailed evaluation and concomitant performance improvement programme commencing in Q4 2011. All management systems are under review also on the corporate level, including reorganisation of the Executive Committee and redefinition of the duties within it. Retirement from active executive duties of CEO Pekka Perä On 7 October 2011, Talvivaara announced that CEO Pekka Perä had stated to the Board of Directors his decision to retire from active executive duties over the coming months. Consequently, the Company will seek to appoint a new CEO at the earliest opportunity, and Mr Perä has agreed to continue with his current duties until that time. Mr Perä has also confirmed that he intends to continue as an active member of the Board and to retain his current shareholding in the Company. The Board has commenced the search for a new CEO and will update the market as appropriate, to ensure a smooth handover of responsibilities and effective transition. Signing of the revolving credit facility amendment agreement In October, an amendment agreement was signed by Talvivaara and the lending banks to an originally EUR 100 million revolving credit facility agreement. In addition to certain amendments to reflect Talvivaara`s current stage of development, the facility was expanded to EUR 130 million and the maturity was extended by one year to June 2014. The lenders and arrangers of the facility are Nordea Bank, Sampo Bank, Svenska Handelsbanken and Pohjola Bank. The facility, which is currently undrawn, carries a varying margin of 1.75-3.00% depending on the Company`s leverage ratio. Strike of the Metal Workers Union and Trade Union Pro The Finnish Metal Workers Union and the Trade Union Pro commenced a strike on 21 October 2011 across 40 companies within the technology industries. Certain mining companies including Talvivaara were however excluded from the scope of the strike. The strike ended on 24 October 2011. Environmental permitting The Kainuu Centre for Economic Development, Transport and the Environment (the "ELY Centre") resolved on 21 October 2011 that the increase in the annual production rate of the Talvivaara mine from approximately 30,000t to 50,000t of nickel will require a new Environmental Impact Assessment ("EIA"). The intended increase in the production rate was initially part of Talvivaara`s renewal application for its existing environmental permit, submitted in March 2011. However, subsequent to the ELY Centre`s decision, the target to increase the production rate was pulled from the renewal application in order to conduct the required EIA and to apply for the permit to produce 50,000tpa nickel separately. The new EIA process has commenced and discussions with the authorities for the finalization of the programme are ongoing. The EIA relating to the 50,000tpa of nickel production rate will be conducted simultaneously with the EIA required for the potential increase of the production rate to up to 100,000tpa of nickel, and for the expansion of the mining concession area to 130 km2. The EIA`s are anticipated to be completed during the second half of 2012. Thereafter, Talvivaara intends to first apply for a permit to produce 50,000tpa of nickel with a separate application and, based on discussions with the authorities, anticipates obtaining the permit around mid-year 2013. The environmental permit application relating to the 100,000tpa of nickel production rate will also be submitted in 2012, but it is anticipated that the processing time of the application will be longer and that the permit can therefore only be obtained in early 2014. Given that the environmental permit to produce 50,000tpa of nickel is expected to be obtained mid-year 2013, the change in the permitting agenda is not anticipated to have a material impact on Talvivaara`s ramp-up schedule. Short-term outlook Operational outlook The availability and utilization rate of the hydrogen sulphide generators and the overall metals recovery process are the critical factors in view of Talvivaara`s short term production volumes. Since mid-October, both of Talvivaara`s hydrogen sulphide generators are in production, and the entire metals recovery process is operating as anticipated. Talvivaara however expects to keep running the hydrogen sulphide generators below full capacity in order to avoid any further unscheduled downtime until a sufficient spare parts inventory has been received, expected by the year-end. Based on current production output and the foreseen short term availability of the metals recovery plant, Talvivaara reiterates its production target for the current year at a minimum of 16,000 tonnes of nickel. Production guidance for the coming year is being reassessed based on, amongst others, anticipated reliability and availability of the metals recovery plant, expected progress in the stacking of new ore and Talvivaara`s revised short term operating plan. Further information relating to 2012 production and financial guidance will be released in connection with Talvivaara`s Capital Markets Day on 17 November 2011. Market outlook The third quarter of 2011 was marked by heightened volatility and uncertainty across financial and commodity markets, driven by escalating macroeconomic concerns on global economic growth, Eurozone sovereign debt issues and robustness of the European banking system. The nickel price declined from a high of around USD 25,000 per tonne in July to a low of USD 17,570 per tonne at the quarter end. In terms of nickel market fundamentals, however, LME nickel stocks have continued to decline and currently track around their lowest levels since early 2009. While a degree of new supply is expected to come on stream, the Company does not expect a significant shift of the supply-demand balance in the near term. Furthermore, as nickel prices declined during the quarter, a supply-side response especially from nickel pig iron producers was reported already at price levels around USD 19,000 per tonne. In a weaker nickel price environment, high-cost swing capacity is thus expected to be shut down also going forward, thereby supporting price levels. While base metals, including nickel, have somewhat recovered during October and early November, volatility is expected to remain at an elevated level until there is more clarity on the growth trajectory of the global economy and on the policymakers` ability to contain the debt crisis in Europe. Barring a severe global recession, however, further significant downside to nickel prices would appear to be capped by marginal costs of production. Talvivaara continues to believe the longer term support level to be around USD 20,000 per tonne, although shorter term, macro-economy driven declines even substantially below this level remain possible. 9 November 2011 Talvivaara Mining Company Plc
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS` EQUITY
NOTES 1. Basis of preparation The interim financial information set out herein has been prepared on the same basis and using the same accounting policies as were applied in drawing up the Group`s statutory financial statements for the year ended 31 December 2010. In February 2010, Talvivaara completed a long-term Zinc in Concentrate Streaming Agreement with Nyrstar. Under the terms of the agreement, Talvivaara shall deliver all of its zinc in concentrate production to Nyrstar until a total of 1,250,000 metric tonnes has been delivered. Talvivaara received an advance payment of USD 335 million from Nyrstar for the agreed deliveries. The advance payment was initially classified as a monetary liability and translated to euros on the basis of end-of-period exchange rates. Exchange rate gains and losses were recognised on the income statement as finance income or cost. The Company has reclassified the advance payment as a non-monetary liability and restated the financial statements of prior periods according to IAS 8. The reclassification better reflects the financial nature of the transaction, as the advance payment is repaid through physical deliveries and therefore there is no actual foreign exchange risk. The reclassification does not have any impact on the operating earnings or cash flows of prior periods. The adjusted amounts and financial statement line items affected are presented below for each prior period. Key figures have been adjusted accordingly. Capital commitments At 30 September 2011, the Group had capital commitments principally relating to the completion of the Talvivaara mine, improving the reliability and expansion of production capacity. These commitments are for the acquisition of new property, plant and equipment. `
1) Trading price is calculated on the average of EUR/GBP exchange rates published by the European Central Bank during the period. Talvivaara Interim Report Jan-Sep 2011 9.11.2011 This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: Source: Talvivaaran Kaivososakeyhtiö Oyj via Thomson Reuters ONE Authors: mining - Yahoo! News Search Results Read more... http://finance.yahoo.com/news/Talvivaara-Mining-Company-thomsonreuters-3676027134.html |
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