The ramp-up of the Terrafame mine continued according to plan in early 2016 14.4.2016

Ramp-up and operations of the mine in brief:

 

  • The ramp-up of the Terrafame mine proceeded in 2015 and in January–March 2016 in accordance with the set targets.
  • The amount of ore stacked on the primary heap in January–March totalled 2.7 million tonnes. The amount was almost in line with the target of 2.9 million tonnes set for January–March. The stacking of new ore was slowed down by the reclaiming of old ore from the primary heap. Heap stacking during the four months 912 of production in 2015 amounted to 4.1 million tonnes (target 4.0 million tonnes).
  • The ore reclaimed from primary heaps to secondary heaps totalled 2.5 million tonnes. The amount was almost in line with the target of 2.7 million tonnes set for January–March. What is important is that reclaiming capacity has improved significantly since the autumn of 2015. The reclaiming capacity of the primary heap has practically doubled after a second surface miner began operation at the end of January. A third surface miner for heap reclaiming will be commissioned in May. Heap reclaiming in September–December totalled 2.0 million tonnes.
  • The results of bioleaching have been promising. At the beginning of the year, the recovery of the bioleaching heaps has progressed close to a recovery rate of 75 per cent. The nickel concentration of the solution fed to the metals recovery plant was 1.3 g/l at the end of March 2016, exceeding the target set for the end of March by 0.2 g/l.
  • A total of 1,542 tonnes of nickel and 3,497 tonnes of zinc were produced in JanuaryMarch. The production surpassed the amounts budgeted for JanuaryMarch by 312 tonnes for nickel and by 852 tonnes for zinc. 578 tonnes of nickel and 1,812 tonnes of zinc were produced in 2015.
  • Terrafame Ltd.’s net sales of the first quarter of 2016 were EUR 14.2 million. (EUR 2.5 million in 2015). The net sales surpassed the amount budgeted for JanuaryMarch by EUR 1.2 million, or by 9 per cent. EBITDA was negative EUR 52.8 million (EUR -91.7 million in 2015). The EBITDA was EUR 3.4 million (6%) less negative than budgeted for JanuaryMarch.
  • The water situation in the mine has remained challenging due to the limited possibilities to use the discharge pipe into Lake Nuasjärvi. Additional discharges of purified waters will be conducted in AprilMay 2016 to ensure dam and environmental safety.
  • Occupational safety developed positively at the beginning 2016. The lost time injury frequency was 23.3 per million working hours at the end of 2015 and decreased to 12.5 by the end of March.

 

Terrafame Ltd.’s Chairman of the Board Lauri Ratia:

“The ramp-up of the mine has proceeded as planned, both in autumn 2015 and during the first quarter of 2016. Mining, crushing, agglomeration and construction of leaching heaps started in accordance with the objectives, and ore was stacked on the leaching heaps as planned. The quality of the stacked ore has also met the set targets. However, the delivery volumes of nickel and zinc products will not reach an economically significant level until autumn 2016. The operational costs of the mine have been slightly below budget during autumn 2015 and spring 2016.

The bioleaching process has started somewhat better than expected. In the new constructed parts of the leaching heaps, the temperature of the metal solution has risen slightly better than expected. The high temperature of the solution is also an indication of an effective start of the leaching process. Even during the coldest winter weather, the temperature of the solution fed to the metals recovery plant was approximately 20 °C.

Initial leaching results indicate that the 70% target for the recovery rate set out in Terrafame’s business plan can be achieved and possibly even exceeded. However, any firm conclusions cannot be drawn from these promising results at such an early stage. The total recovery rate of the primary leaching is not known until after an approximately 15-month leaching process.

The progress of the ramp-up has not been associated with any problems that would have substantially hampered the operation of the mine during the autumn of 2015 and the beginning of 2016. The main challenges were related to the transport of waste rock and reclaiming the leaching heaps of the previous operator and transferring them to the secondary heaps. Terrafame has taken decisive action to improve the transport and reclaiming capacity, and the reclaiming capacity of the old heaps has been doubled.

The metal production in the mine was started at the end of 2015 when the first customer deliveries were also carried out. The metal production exceeded the targets in JanuaryMarch of 2016 by approximately 25%. The production target is 11,500 tonnes of nickel for 2016 and 25,000 tonnes for 2017.

The world market price for nickel has developed weakly since the start of Terrafame’s operations, which has not, however, had a direct impact on Terrafame’s profitability as the quantities of metal sold are still low. The competitiveness of the mine is estimated to be good among other nickel producers. After the ramp-up, the mine is able to cover production costs when nickel price is at a level of USD 11,000/t, and with current investments included, when nickel price is USD 12,700/t. Some early signs indicate that nickel stock levels are slowly beginning to decline, which can be expected to support the development of nickel price.

Terrafame took over responsibility for the mining operations in a very challenging situation in August 2015. The ramp-up of the mine has proceeded as planned, and the company estimates that the ramp-up will also continue to proceed according to plan during the rest of 2016.”

 

Production situation

During the first quarter, Terrafame produced a total of 2.7 million tonnes of ore. The target of 2.9 million tonnes was almost reached, and the volume fell slightly below budget mainly due to the removal capacity of the older ore. In SeptemberDecember 2015, altogether 4.1 tonnes of ore were transferred to the primary heap.  

When the mine operations were started in autumn 2015, stacking quality was defined as an important quality criterion. This included monitoring of the correct installation procedure and distances for both aeration and irrigation pipes. The amount of nickel in the mined and stacked ore was 6,300 tonnes in the first quarter, exceeding the target set for JanuaryMarch by 65 tonnes (9,035 tonnes in SeptemberDecember 2015). The average nickel concentration in the ore was 0.23 per cent (0.22 per cent in 2015).

Bioleaching has had an even stronger start than expected, and leaching temperatures began to rise rapidly. The total recovery rate of nickel developed well by the end of March 2016, progressing close to a recovery rate of 75 per cent. The company’s business models are based on a total recovery rate of 70 per cent.The average nickel concentration of the solution fed to the metal recovery plant was 1.3 g/l at the end of March, exceeding the target set by Terrafame by 0.2 g/l. At the end of August 2015, the average nickel concentration of the solution was 0.4 g/l.

Although both the solution concentrations and the production volumes of final products have exceeded the set targets, metal recovery rates from the new primary heaps have been moderate and the aim is to further increase metal concentration of the production solution (PLS). Metal production developed better than estimated due to the efficient and successful operations of the metals recovery plant during the first quarter of 2016.

During the first quarter, Terrafame produced 1,542 tonnes of nickel and 3,497 tonnes of zinc (578 tonnes of nickel and 1,812 tonnes of zinc in 2015). The production targets for nickel is 11,500 tonnes in 2016, 25,000 tonnes in 2017 and 30,000 tonnes in the long term from 2018 onwards. The production targets for zinc are 24,700 tonnes, 54,000 tonnes and 64,500 tonnes, respectively.

During the first quarter, the average flow rate at the metals recovery plant was 728 m3/h, exceeding the set target by 25 m3/h. There were only few disturbances, and the plant returned quickly back to normal production afterwards. Including the initial operation period in the autumn, the average flow rate on a single line was 531 m3/h in 2015. This involved the processing of mild bioleaching solutions with the aim of decreasing the solution inventory. All in all, Terrafame invested almost EUR 7 million in repairs and the elimination of bottlenecks at the metal recovery plant.

 

Market development and financial situation

Nickel prices on the London Metal Exchange (LME) fell by 42 per cent from December 2014 to December 2015, the lowest level in the last 12 years. At the end of 2015, nickel price was USD 8,665 per tonne. At the end of March 2016, nickel price was USD 8,717 per tonne. Furthermore, nickel stock levels at LME were at the record level of 480,000 tonnes at the end of 2015. At the beginning of 2016, it was observed that the stock levels were slowly beginning to decline.

Zinc prices on the LME fell by 30 per cent from December 2014 to December 2015, the lowest level in the last five years. At the end of the year, the zinc price was USD 1,528 per tonne and at the end of March 2016 USD 1,804 per tonne. Zinc stock levels at the LME were 465,000 tonnes at the end of 2015.

Poor market developments have had hardly any effect on Terrafame, since its commercial deliveries of nickel and zinc were very small due to the fact that the ramp-up of the mine did not start until mid-August.

Terrafame Ltd.’s net sales from metal product deliveries in 2015 amounted to EUR 2.5 million. The net sales in the first quarter were EUR 14.2 million. The net sales exceeded the budgeted amount for JanuaryMarch by EUR 1.2 million or 9 per cent.

Purchasing and manufacturing costs totalled EUR 85.3 million in 2015. The largest expense items were the production chemicals, external services, servicing, repair and maintenance costs, as well as electricity and water management costs. Administrative costs were EUR 8.2 million and personnel costs were EUR 9.9 million.

In 2015, the cost budget was underspent by two per cent, and the costs in the beginning of 2016 fell also below budget by 4 per cent. The production processes used in the mine are characterised by the operations and start-up tying up large amounts of capital and increasing costs immediately after the mining operations are started, while the revenue stream is generated much more slowly due to the fact that bioleaching is a long process.

Regardless of the price development of metals, mine operations incur costs that are heavily front-loaded, especially during the first year of ramp-up. In 2015, EBITDA was EUR -91.7 million and in the first quarter of 2016, EUR -52.8 million. The negative EBITDA of early 2016 was 6% lower than budgeted.

Terrafame Group Ltd., the owner of Terrafame Ltd., has made systematic preparations since the autumn of 2015 to strengthen the financial base and widen the ownership base of the mine. Negotiations on the ownership and financial structure of Terrafame Ltd. are still ongoing and will continue towards summer 2016.

The State’s first supplementary budget of 2016 is expected to enter into force on 15 April 2016. The supplementary budget includes a sum of EUR 38.5 million to be used to increase the equity of Terrafame Group Ltd. The amount is the same that at the same time will be withdrawn from the financing allocated to the bankruptcy estate of Talvivaara Sotkamo Ltd in the 2015 supplementary budget proposal. Terrafame estimates that in addition to the above-mentioned amount, it is possible that additional funding from the government is needed. However, private financing is the primary goal.

 

Safety

When Terrafame started its operations, the most important goal was safety, with a particular emphasis on responsibility for the environment and for people.

Terrafame took over responsibility for the mining operations in a very challenging situation in which the bioleaching solution volumes were 830,000 m3, exceeding level considered safe. In addition, there was more than 10 million cubic metres of extra water in the area.

A key milestone in terms of water management was reached in November 2015 when the discharge pipe from the mining area to Lake Nuasjärvi was put in operation. However, the Vaasa Administrative Court halved the sulphate quota granted for the discharge pipe with its interim decision in September 2015, also defining a monthly maximum level. As it has not been possible to use the discharge pipe as planned, more water continues to accumulate in the mining area. The water being diverted into the discharge pipe has clearly fulfilled the limits set by the environmental permit, and the water quality of Lake Nuasjärvi has remained at the level of previous years despite the use of the discharge pipe. By the date of this release, the Vaasa Administrative Court has still not issued its final decision regarding the discharge pipe.

Terrafame Oy conducted additional discharges of a total of 950,000 m3 purified waters to nearby watercourse areas on 19–31 December 2015 to ensure dam safety. Additional discharges of purified waters from Lake Kortelampi and Lake Latosuo will be continued also in April–May 2016 until the water surface at the water reservoirs has reached the level that can be considered safe in view of dam and environmental safety.

Terrafame's management defined occupational safety as a special focus area when Terrafame took over the mining operations. The goal is to decrease the lost time injury frequency to less than 7 injuries per million working hours by the end of 2016. In 2015, the lost time injury frequency was 23.3 per million working hours. The systematic work to develop occupational safety has developed positively, as lost time injury frequency decreased to 12.5 by the end of March 2016.

 

Personnel

At the end of March 2016, the total number of employees was 601 persons (529 persons at the end of 2015). During autumn 2015, about 140 new employees started work at the mine, and recruitment activities have continued in early 2016. Employee training focuses especially on safety, efficiency and good working practices, supported for instance by department teams that have been set up. Including the contractors in the mining area, approximately 950 persons worked at the mine at the end of March 2016.

 

Near-term outlook

The short-term market outlook for metals remains modest and nickel price development involves significant uncertainties. Terrafame closely monitors the progress of its bioheapleaching process, focusing in particular on the beginning of leaching in the heaps built during the winter 20152016.

Commercial negotiations are also progressing promisingly, and customer deliveries of both nickel and zinc are underway. Terrafame estimates that the nickel and zinc production targets for the remainder of the year will be achieved.

Terrafame is still waiting for the decision of the Vaasa Administrative Court regarding the use of the discharge pipe leading to Lake Nuasjärvi. The contents of the decision may significantly affect the continuation of the mining operations. Negotiations to strengthen the financial base and widen the ownership base of Terrafame Ltd. are still underway, and the company estimates that the conditions for securing additional capital are realistic.

 

Annual report 2015 and financial statements

Terrafame Group has published the financial statements (IFRS) for 2015 as part of Terrafame’s annual report today on 14 April 2016 at annualreport2015.terrafame.fi. Terrafame Ltd.’s financial information for the first quarter of 2016 presented in this release are unaudited FAS figures.

 

Further information and interview requests:

Terrafame Ltd., Chairman of the Board Lauri Ratia, lauri.ratia@terrafame.fi

 

Terrafame Ltd. is a Finnish mining company producing primarily nickel and zinc by bioheapleaching at its mine located in Sotkamo. The aim is environmentally sustainable, safe and economically viable mining operations. Terrafame is owned by Terrafame Group Ltd., which is wholly owned by the State of Finland.