The ramp-up performance of the Terrafame mine improved as planned in the second quarter 27.7.2016

Ramp-up and operations of the mine in brief:

In January–June 2016, the ramp-up and operations of the Terrafame mine proceeded according to plans. Production goals were met and costs were below budget in the second quarter. In addition, occupational safety and water situation at the mine improved.

  • The amount of ore stacked on the primary heaps in January–June totalled 5.8 million tonnes. In April–June, a total of 3.1 million tonnes was stacked (Q1 2016: 2.7).
  • The ore reclaimed from primary heaps to secondary heaps totalled 5.8 million tonnes. In April–June, a total of 3.3 million tonnes was reclaimed (Q1 2016: 2.5). To speed up heap reclaiming, a third surface miner was commissioned by Terrafame in June.
  • A total of 3,309 tonnes of nickel and 7,567 tonnes of zinc were produced during the January–June period. In April–June, 1,754 tonnes of nickel (Q1 2016: 1,555) and 4,070 tonnes of zinc (Q1 2016: 3,497) were produced.
  • The net sales of the Terrafame Ltd. in the January–June period were EUR 32.1 million. In April–June, the net sales amounted to EUR 18 million (Q1 2016: 14.2).
  • In January–June, EBITDA was negative EUR 98.0 million, which was EUR 12.7 million better than budgeted. In April–June, EBITDA was negative EUR 44.8 million (Q1 2016 -53.1).
  • Terrafame has continued active measures to improve occupational safety. The lost time injury frequency was 12.4 per million working hours in January–June and 12.3 in April–June (Q1 2016: 12.5).
  • In April, the Vaasa Administrative Court issued its decision regarding the appeals made on the discharge pipe into Lake Nuasjärvi and other issues related to Terrafame’s environmental permits. The Administrative Court decided to increase the sulphate quota of the discharge pipe from the 12,000 tonnes decreed in its earlier interim decision to 15,000 tonnes per year. This will enable the continuation and development of operations. However, within the limits of this quota, it will take more than five years to remove the excess water from the area.
  • The Ministerial Committee on Economic Policy discussed Terrafame’s situation and the continuation of its operations in May. In June, a capitalization of EUR 144 million was allocated to Terrafame in the State’s second supplementary budget. The ramp-up of the mine will continue as planned at least until the end of 2016. At the same time, preparations for a managed closure of the mine are underway, in case private funding cannot be secured by the end of 2016. Active negotiations to obtain private funding will continue throughout the rest of the year.

 

Terrafame Ltd.’s CEO Joni Lukkaroinen:

“The ramp-up of the mine continued strong and the key targets were met also in in the second quarter of the year. Between autumn 2015 and the end of June 2016, 10 million tonnes of ore has been mined, crushed, agglomerated and stacked on the primary leaching heaps, corresponding to about 40 per cent of the primary leaching production capacity.

The results of the bioleaching process are in line with expectations. The first phase of the leaching process, i.e. primary leaching, will take about 15–18 months. Block 1 of the primary heap has been leached for 7 months, resulting in a leaching recovery rate of over 25 per cent for nickel and over 30 per cent for zinc. After primary leaching, the ore is reclaimed and stacked to secondary leaching, the second phase of the leaching process, which will take about 35 months. A total leaching recovery rate of 70 per cent has been set out in Terrafame’s business plan. The performance of the constructed heaps indicates that this target will be met.

In the second quarter, the sale and deliveries of nickel and zinc continued according to plans. Customer feedback on the products and quality of operations has been positive. Strong growth in demand for nickel continued in the early 2016. Global demand for nickel in stainless steel production increased by 8.5 per cent in Q1 2016 year over year. At the end of June, the nickel stock levels at the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) were 479,000 tonnes combined, which is approximately 2.4 per cent less than in the beginning of 2016. Increase in the market price of nickel was not visible until early July, when the prices increased to well above USD 10,000 per tonne. At the end of June, the nickel price was USD 9,415 per tonne.

In January–June, EBITDA was negative EUR 98.0 million, which was EUR 12.7 million better than budgeted. The most significant factors contributing to the better than expected result were the proceeds from zinc sales and the increased efficiency in the use of chemicals in metals recovery. The zinc sales in January–June exceeded the budget by EUR 3.8 million.

The systematic work to develop occupational safety has continued. In January–June, the lost time injury frequency was 12.4 injuries per million working hours. Despite the proactive work done, four lost time injuries occurred during the April–June period. These workplace injuries resulted in a total of 7 days of absence (Q1 2016: 20 days). The personnel is very committed to developing occupational and environmental safety. Our goal is to make Terrafame an exemplary workplace with regards to occupational and environmental safety.

The Vaasa Administrative Court issued its decision regarding the appeals made on the discharge pipe into Lake Nuasjärvi and other issues related to Terrafame’s environmental permits in April. The Administrative Court changed the annual sulphate quota of the discharge pipe from the 12,000 tonnes decreed in its earlier interim decision to 15,000 tonnes per year. At the same time, the sulphate concentration in the discharged waters was set to 4,000 milligrams / litre (previously 6,000 mg/l). The concentration in the waters discharged from the mine have stayed well below the permit limits, an average of 1,909 mg/l in January-June. Within these limits, it is possible to continue and develop the mine’s operations. However, within the limits of this quota, it will take more than five years to remove the excess water from the area.

The amount of water in the mining area has decreased by 28 per cent since the beginning of the year, to 7.2 million cubic metres by the end of June. Due to the effective bioleaching process, evaporation from bioleaching heaps has been strong, so during March–June, a total of 0.6 million cubic metres of waters stored in the mining area were led to the bioleaching heaps.”

Production situation

During the first half of the year, Terrafame produced a total of 5.8 million tonnes of ore. In April–June, a total of 3.1 million tonnes of ore (Q1 2016: 2.7 million tonnes) was produced.

The mining was transferred to the middle quarry in April earlier than planned, enabling improved cost-efficiency: in the middle quarry, the nickel content in the ore is higher and the mining costs lower than in the northern quarry where we operated earlier.

In January–June, the amount of nickel in the mined and stacked ore was 14,391 tonnes and the amount of zinc 27,543 tonnes. In April–June, the amount of stacked nickel was 7,761 tonnes (Q1 2016: 6,630 tonnes) and the amount of zinc 14,767 tonnes (Q1 2016: 12,776 tonnes).

The bioleaching process has continued even stronger than expected. The total recovery rate of nickel developed well by the end of June 2016. Terrafame’s business plan is based on a total recovery rate of 70 per cent. In January–June, the amount of leached nickel was 3,653 tonnes and the amount of leached zinc 8,451 tonnes. In April–June, the amount of leached nickel was 2,158 tonnes (Q1 2016: 1,495 tonnes), and the amount of zinc was 5,873 tonnes (Q1 2016: 2,578 tonnes). The amount of leached nickel and zinc exceeds the amount of metal produced at the metals recovery plant, meaning that the metal concentration of the circulating leaching solution increased.

During the first half of the year, Terrafame produced 3,309 tonnes of nickel. In April–June, a total of 1,754 tonnes of nickel (Q1 2016: 1,555) was produced. 7,567 tonnes of zinc was produced in January–June and 4,070 tonnes in April–June (Q1 2016: 3,497). As the ramp-up progresses, the monthly production volumes will be increased according to plans and significantly during the rest of the year.

Market development

At the end of June 2016, nickel price was USD 9,145 per tonne (USD 8,280 at the end of March). Strong growth in demand for nickel continued in the early 2016. Demand for nickel in stainless steel production increased by 8.5 per cent in Q1 2016 year over year. During the first half of 2016, the nickel stock levels at LME and SHFE decreased by 2.4 per cent to 479,000 tonnes.

Zinc price has shown strong growth during the early summer, standing at USD 2,103 per tonne at the end of June (USD 1,785 at the end of March). Demand for zinc has remained steady during the first half of 2016. In Q1 2016, zinc mine production decreased by 8.1 per cent year over year. At the end of June, the zinc stock levels at LME totalled 442,000 tonnes (463,000 tonnes at the end of December 2015).

Financial situation

Terrafame Ltd.’s net sales from metal product deliveries amounted to EUR 32.1 million in the first half of 2016 and to EUR 18 million in April–June (Q1 2016: 14.2).

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 the first half of 2016, EBITDA was EUR -98.0 million and in the April–June, EUR -44.8 million (Q1 2016: -53.1).

During the first half of the year, the investment expenditure was EUR 30.6 million, of which EUR 19.8 million was accrued in April–June (Q1 2016: 10.8). Major investments include the construction work related to the expansion of the secondary leaching field and the centralised water treatment plant that will be completed in the autumn.

Decisions of the state-owner

In May, the Ministerial Committee on Economic Policy decided that the operations at the Terrafame mine will continue during a transition period that lasts until the end of 2016. After this, private funding is required to finish the ramp-up. While financing negotiations will continue during the transition period, preparations for a managed closure of the mine will also be carried out.

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, have been started.

“In June, a capitalization of EUR 144 million was allocated to Terrafame in the State’s second supplementary budget. Since autumn 2015, Terrafame Group Ltd. and Terrafame together have been systematically preparing to strengthen the financial base and widen the ownership base of the mine. Intensive negotiations to obtain private funding will continue throughout the rest of the year,” says Matti Hietanen, CEO of the parent company Terrafame Group Ltd.

Agreement with Talvivaara Mining Company Plc

At the end of June 2016, Terrafame Ltd. and Talvivaara Mining Company Plc completed a transaction in which Terrafame purchased essential assets related to the operation of the Sotkamo mine from Talvivaara Mining Company Plc. The assets acquired include the lime plant necessary for the production process, the laboratory, and the ownership of the geological data related to the mine. As a result of the transaction, all assets and operations related to the mine are now owned by Terrafame.

Terrafame paid a total of EUR 1.4 million in cash for the assets. In addition, Terrafame transferred as compensation to Talvivaara Mining Company Plc the receivables with a nominal value of approximately EUR 14 million held by Terrafame and guaranteed by Talvivaara Mining Company Plc.

Should Talvivaara Mining Company Plc’s Extraordinary General Meeting to be held no later than 15 August 2016 not approve the transaction, it would become null and void. The transaction does not include other terms and conditions that could annul the transaction.

Environmental safety

Terrafame took over responsibility for the mine in 2015 in a very challenging situation in which the bioleaching solution volumes were 830,000 cubic metres, exceeding level considered safe. In addition, there was about 10 million cubic metres of extra water in the area.

At the end of June, there was approximately 7.2 million cubic metres of water stored in the mining area and approximately 0.3 cubic metres in the circulating leaching solution.

Discharge pipe into Lake Nuasjärvi

The use of the discharge pipe into Lake Nuasjärvi, which is critical for the management of the water situation, began in November 2015. The permit granted by the Regional State Administrative Agency for the use of the discharge pipe set the sulphate quota to 24,000 tonnes per year, enabling the purification and removal of extra waters from the area within three years.

In September 2015, the Vaasa Administrative Court issued an interim decision, halving the sulphate quota of the discharge pipe from the mining area into Lake Nuasjärvi to 1,000 tonnes per month. Due to this, the volume of waters accumulated in the mining area could not be reduced during winter as planned and in accordance with the environmental permit granted.

In the beginning of April 2016, the water at the dams of Kortelampi and Latosuo had climbed to a level where the risk of uncontrollable leakage of water into the environment had risen too high, according to Terrafame’s assessment. Consequently, Terrafame conducted additional discharges of water from the Kortelampi and Latosuo reservoirs in April and May until the water surface at the water reservoirs reached the level that can be considered safe with regards to dam safety and environmental safety. A total of 1.9 cubic metres of water was discharged.

The concentrations in the water being diverted into the discharge pipe were clearly below the limits set by the environmental permit.

Decisions of the Vaasa Administrative Court

In April, the Vaasa Administrative Court issued its decision regarding the appeals made on the discharge pipe into Lake Nuasjärvi and other issues related to Terrafame’s environmental permits. The Administrative Court decided to increase the sulphate quota of the discharge pipe from the 12,000 tonnes decreed in its earlier interim decision to 15,000 tonnes per year. In addition, it obliged Terrafame to apply for a new environmental permit by the end of August 2017. The decisions of the Administrative Court enable controlled improvement of the water situation at the mine as well as continuation and development of operations as planned.

Terrafame has appealed the decisions of the Vaasa Administrative Court to the Supreme Administrative Court.

Annual environmental observation report

In May, Terrafame published the key results of the mine’s annual environmental observation report for 2015. Environmental monitoring at the Sotkamo mine continued without interruption throughout the year, despite the change of the operator in August 2015.

In 2015, in accordance with the environmental permit, a total of 7.0 million cubic metres of purified water was led to the old discharge routes, of which 1.9 million cubic metres were led to the Vuoksi watercourse area. The load from the discharge is equivalent in size to the 2014 load. In accordance with the environmental permit, a total of 1.44 million cubic metres of purified water was led through the discharge pipeline in 2015, including the test use of the discharge pipe. The sulphate load from the discharge was 3,150 tonnes in total.

The metal and sulphate concentrations in the waters led to both the discharge pipeline and old routes fell clearly below the limits set by the environmental permit.

Occupational safety

Terrafame’s 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. The systematic work to develop occupational safety continued positively in the early 2016, and lost time injury frequency was 12.4 during the first half of 2016. Measures such as personnel training, the management’s weekly safety rounds, foremen’s regular safety meetings and safety bonus, have been implemented to improve occupational safety.

Personnel

At the end of June 2016, the total number of Terrafame employees was 674 persons (601 persons at the end of March), 69 of whom were summer employees. During the first half of the year, employee training focused especially on occupational safety and managerial duties. Including the contractors in the mining area, approximately 950 persons worked at the mine at the end of June 2016.

Near-term outlook

Demand for Terrafame’s two main metals, nickel and zinc, is boosted by the positive development of the steel industry.Terrafame closely monitors the progress of its bioleaching process, focusing in particular on the progress of leaching in the heaps built during the winter 2015–2016.

The second line of the metals recovery plant will be put in operation during autumn 2016, thereby increasing the production volumes. The production target for nickel is 11,500 tonnes in 2016, 25,000 tonnes in 2017 and 30,000 tonnes from 2018 onwards. The production targets for zinc are 24,700 tonnes, 54,000 tonnes and 64,500 tonnes, respectively.

Terrafame has initiated the preparations for a managed closure of the mine in accordance with the decisions of the Ministerial Committee on Economic Policy. The ramp-up and operations of the mine will continue as planned at least until the end of 2016.

Active negotiations to strengthen the financial base and widen the ownership base of Terrafame Ltd. will continue throughout the rest of the year.

Terrafame Ltd.’s financial information for 2016 presented in this release are unaudited FAS figures.

 

Further information:

Joni Lukkaroinen, CEO of Terrafame Ltd, tel. +358 50 590 0720, joni.lukkaroinen@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.