Terrafame’s mining operations will continue − the State of Finland is preparing for a managed closure of the mine 25.5.2016
The Ministerial Committee on Economic Policy has today, on 25 May 2016, discussed Terrafame’s situation and the continuation of its operations. The operational conditions are still met for the ramp-up of the mining operations to continue successfully, and operations at the mine will continue as planned at least until the end of 2016. At the same time, the State is preparing for a managed closure of the mine due to the uncertainties related to the continuation of its operations, the most significant being nickel price development. If it were decided to close the mine, environmental safety will be ensured under all circumstances. Active negotiations to obtain private funding will continue throughout the rest of the year. The Ministerial Committee on Economic Policy has recommended an additional capitalization of EUR 144 million to Terrafame Group Ltd.
Summary of the decisions of the Ministerial Committee on Economic Policy on 25 May 2016 with regards to Terrafame
- The operations at the mine will continue as before. At the same time, however, the State of Finland is preparing for a managed closure of the Terrafame mine. Preparations for the closure will be carried out during a transition period that lasts until the end of 2016.
- The operations at the mine will continue in order to ensure environmental safety and to maintain the conditions for operations to continue also after the transition period.
- The possible closure would be carried out in a way that will ensure environmental safety under all circumstances.
- The goal is still to secure private funding to finish the ramp-up of the mine and enable commercial operations in the long term. Negotiations with potential private investors will continue until the end of 2016.
- The Ministerial Committee on Economic Policy has recommended an additional capitalization of EUR 144 million to Terrafame Group Ltd.
- Preparation of the detailed closure plan that ending the mining operations requires, a more detailed assessment of costs, and drafting of the Environmental Impact Assessment that the closure might require, will be started immediately. At the same time, Terrafame will prepare for applying for an environmental permit that the closure requires. The Environmental Impact Assessment and environmental permit processes necessary for the continuation of the mining operations will be advanced simultaneously.
Information on the progress of the ramp-up and outlook of the Terrafame mine and the effects of the decisions issued by the Vaasa Administrative Court
The ramp-up of the Terrafame mine in 2015 and the early 2016 has proceeded even better than planned. The amount of ore is in line with targets; the recovery rates for the bioleaching process, which is vital for the successful ramp-up of the mine, are still promising; the nickel concentration of the solution fed to the metals recovery plant is in line with the target set and the utilisation rate of the metals recovery plant has been high. The net sales of the company during the January–April period were EUR 22.1 million (budgeted net sales EUR 18.2 million) and EBITDA was negative EUR 67.6 million (budget negative EUR 76.9 million).
The Vaasa Administrative Court issued its decisions on the Terrafame mine in April 2016. The Administrative Court decided to convert the key environmental permits of the mine into temporary permits valid until the end of 2018. The decisions also involved the discharge pipe which runs from the mining area into Lake Nuasjärvi and whose sulphate quota limits the Administrative Court set to 15,000 tonnes per year. As a result, Terrafame will likely have to conduct additional discharges from the mining area in 2017 and 2018, and reducing the amount of water in a controlled manner is estimated to take at least eight years instead of the three years previously estimated. According to Terrafame’s estimate, the decision of the Vaasa Administrative Court will increase the environmental risk related to the management of the water situation at the mine to a higher level than before. During Terrafame’s operations, the environmental situation at the mine has remained well under control, and there is currently approximately 8.4 million cubic metres of water in total in the mining area, and 2.3 cubic metres of it has already been purified.
The decisions of the Vaasa Administrative Court do not have a direct impact on the mine’s operations. However, the conditions for obtaining private financing weakened significantly due to the environmental permits being converted into temporary permits. In addition, the decisions may to some extent increase the mine’s operational costs at a later stage. Also the Environmental Impact Assessment procedures as well as drafting of the permit applications will incur additional costs. The decision of the Administrative Court also indicates that the water purification costs required in the closure alternative of the mine may rise substantially, by approximately EUR 200 million.
“The ramp-up of the mine has proceeded according to plan and operational conditions exist to continue the ramp-up successfully. It is clear that at this stage of the operation, there are still significant risks associated with successful start-up and achievement of profitability. We have estimated that the additional financing needed to finish the ramp-up process is approximately between EUR 220 million and EUR 260 million, depending on the scenario and including the EUR 144 million State funding now being discussed. We will continue our active efforts to obtain private funding,” says Matti Hietanen, CEO of Terrafame Ltd.’ parent company, Terrafame Group Ltd.
Closing the mine is a complicated and long process
“The possible closure of the Terrafame mine would be a very long and challenging process. In order to control the water situation and ensure environmental safety, the closure alternative requires that for now, the ramp-up of the mine and mining will continue as planned. There is a rehabilitiation provision of EUR 162 million in Terrafame’s 2015 financial statements which includes only the restoration work related to the active closing phase.
Relevant factors in terms of the total costs and execution of the closure alternative are the conditions and schedule of the environmental permit related to the closure. In these circumstances, the current estimate is that the direct net costs of the closure are likely to increase to approximately EUR 300 million, although the estimate involves significant uncertainties. If the permit conditions require that a new water treatment facility needs to be built in the mining area, the closure costs would increase to approximately half a billion euros on estimate. Despite the significant costs, the State as the owner is preparing for limiting the timing-related and financial risks by starting preparations for closing the mining operations,” Hietanen concludes.
Mining operations will continue as is for now
“The objective set by the state-owner in August 2015 is for the mine to demonstrate that its operations are stable and ensure environmental safety. Additional objective was that Terrafame Ltd.’s business is developing to an economically viable direction and the cash flow would be positive at the turn of 2017‒2018. We have been working very purposefully and with good results to achieve these objectives. The operational situation at the mine and the operational and financial results of the ramp-up achieved so far strongly support the fact that the production process is working, the desired production volumes can be achieved and that the conditions for continuing mining activities in Sotkamo are in place,” says Lauri Ratia, Chairman of the Board of Terrafame Ltd.
“We understand the many and varied social impacts of the operations at the mine and the challenging decision-making situation related to the continuation of the mining operations. In accordance with the decision of the Ministerial Committee on Economic Policy, we will begin more detailed preparations for the managed closure. The primary objective is to ensure environmental safety in all situations while maintaining and ensuring the conditions for successful mining operations in the longer term,” Ratia continues.
The mine has a significant impact on regional economy and employment
“The mine is a major employer in the Kainuu economic region. Approximately 950 Terrafame and subcontractor employees work at the mining area. According to estimates, the mine’s employment impact in Finland when operating at full capacity would be nearly 2,300 man-years. We at Terrafame will continue to do everything in our power to secure the operational conditions of the mine also in the future,” Ratia concludes.
Regarding the future of the mine, one alternative that has been examined is scaling down the operations at the mine to the lowest possible cost level, so that the operations could be restarted in better market situation with regards to the main metals. Due to the bioleaching process used at the Terrafame mine, this alternative would be difficult to execute, because the leaching process cannot be interrupted and would also be slow to start again. However, it has been estimated that in most of the metal price scenarios, this alternative would be more expensive than uninterrupted continuation of the operations at the mine.
Terrafame Group Ltd.
CEO Matti Hietanen, Tel. +358 40 823 8806
Chairman of the Board Lauri Ratia, Tel. +358 50 2922
Terrafame Group Ltd. is a special-purpose company wholly owned by the State of Finland. It is responsible for managing the state ownership and exercising the owner's power at Terrafame Ltd. Terrafame Group's role is to secure private supplementary financing and support the stabilisation and development of the mining company's operations. Terrafame Group is also responsible for helping the development of new technological solutions related to mine water purification.
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.