Report: Terrafame has a great impact on the economy of Kainuu and Finland as a whole 16.11.2016 14:31
According to a report by consultancy firm Ramboll Finland Oy, Terrafame Ltd.'s multi-metal mine and metals recovery plant are highly important for the vitality of the Kainuu region. The impact on employment and the economy also extends to other regions in Finland and to various industries. The report assessed the annual impact of Terrafame's operations in 2019–2023, with the assumption that the company would be operating at full capacity, in accordance with the company's strategy. The impact was then compared to a scenario where Terrafame's mine and metals recovery plant did not exist.
- For Finland, Terrafame's combined value of production (total output) with multiplier effects will be EUR 1.1 billion per year.
- The impact on the Kainuu region's total output with multiplier effects will be approximately EUR 600 million per year.
- The impact on Finland's gross domestic product will be about EUR 430 million (0.2% of Finland's gross domestic product in 2015).
- The impact on the gross domestic product of the Kainuu region compared with the 2013 level will be 10.9%
- The employment impact will be significant – about 1,500 person-years in Kainuu and about 2,800 person-years elsewhere in Finland, with a total employment impact of about 4,300 person-years in Finland.
- Approximately EUR 140 million of various tax revenues – 23 cents for each euro of Terrafame's total output, will return to the State of Finland in the form of different taxes and payments.
- Based on current price forecasts, Terrafame's operations will more than triple Kainuu's exports.
The report on the impact of Terrafame's operations on the economy was prepared by Ramboll Finland Oy, and commissioned by Terrafame Ltd.'s parent company Terrafame Group Ltd. The report assessed Terrafame's direct impact on the economy, as well as the multiplier effects of production and consumption in Kainuu and elsewhere in Finland in five areas: jobs and compensation of employees, total output and value added, gross domestic product, import and export, as well as taxes.
The report was commissioned following the statement by the Parliament's Finance Committee in June 2016, which expressed the need to examine more closely the regional impact of Terrafame's mine and metals recovery plant.
Terrafame Group Ltd.'s CEO Matti Hietanen:
The report shows how significant the impact of Terrafame's operations are to the economy and employment both locally in Kainuu as well in Finland as a whole. When Terrafame operates at full capacity as planned, the impact of the mine and the metals recovery plant on Kainuu's gross domestic product will be nearly 11 percent. This impact can be considered substantial for the regions vitality. It is somewhat surprising how extensive the indirect impact of Terrafames operations will be for different industries and areas of Finland.
Securing environmental safety has been the State's starting point all along. The investments made in Terrafame are expected to produce a return outlined in the business plan. In addition, it is evident that the investments in Terrafame will create significant social benefit through jobs, tax revenues as well as economic activity. Furthermore, considering that Terrafame has brought the water situation well under control and has minimised the environmental risks, we can estimate that the Finnish society will gain broad economic and qualitative benefits from Terrafame's operations.
Key findings of the report
Significant increase in total output of Kainuu and Finland
According to the report, the combined value of production (total output) of Terrafame's mine and metals recovery plant will increase to approximately EUR 1.1 billion per year.
The impact on Kainuu's total output with multiplier effects will be approximately EUR 600 million per year. This is approximately 16.7% of the total output of the entire Kainuu region when compared to the level of the year 2013.
It is estimated that Terrafame will have an impact of EUR 510 million on the total output of the rest of Finland.
According to the report, the multiplier effects of production are EUR 77 million in Kainuu and EUR 415 million elsewhere in Finland. The multiplier effects of consumption are EUR 43 million in Kainuu and about EUR 93 million elsewhere in Finland.
Nearly 11 percent of Kainuu's gross domestic product
Terrafame's mine and metals recovery plant will have a substantial impact on the gross domestic product (GDP) of the Kainuu region and Finland as a whole. Terrafame's impact on Finland's GDP will increase to approximately EUR 430 million. Of this, EUR 225 million will be generated in Kainuu, which is equivalent to 10.9% of Kainuu's GDP when compared to the level of the year 2013. Approximately EUR 210 million will be generated elsewhere in Finland, which is equivalent to 0.2% of Finland's GDP when compared to the level of the year 2015.
About 4,300 person-years of jobs
Terrafame's operations will create significant employment impacts for Kainuu and Finland as a whole. In the production situation outlined in the company's strategy, Terrafame's mine and metals recovery plant will, according to the report, employ about 1,500 people in Kainuu with multiplier effects. Elsewhere in Finland, the employment impact will be approximately 2,800 person-years, taking the entire supply chain into account. Altogether, operations according to Terrafame's strategy will create more than 4,300 person-years of jobs.
Including the contractors at the mine area, about 990 people worked at the mine at the end of September 2016.
Nearly EUR 140 million in various tax revenues
According to the report, operations in accordance with Terrafame's strategy will generate nearly EUR 140 million in real estate, corporation, municipal, value added, commodity and production tax revenues.
In Kainuu, the municipal tax generated would total approximately EUR 11 million. Elsewhere in Finland, the municipal tax generated would be about EUR 16 million. Approximately EUR 91 million in value-added tax would be accumulated. About EUR 11 million in commodity and production taxes with multiplier effects would be accumulated in Kainuu. Elsewhere in Finland, the commodity and production taxes would total about EUR 8 million.
Kainuu's exports would more than triple
The report's premise is the situation in 2016 where 75% of the nickel and 100% of the zinc produced by Terrafame is be exported. At current price forecasts, the value of Terrafame's export would be approximately EUR 380 million per year. As a result, Kainuu's exports outside of Finland would increase to approximately EUR 475 million. Continuing the mining operations according to current plans would thereby increase Kainuu's exports by approximately 230%* [This press release on Terrafame’s website has been updated on 17 November, 2016. In the press release published on 16 November, this percentage was erroneously 330%].
In addition, with mining operations continuing according to the strategy, the value of exports from Kainuu to the rest of Finland would be approximately EUR 90 million per year. This would consist of the sales of nickel, copper and cobalt for further processing in Finland.
According to the report, each euro of exports by Terrafame will contribute EUR 2.88 to the total output in Finland – and one euro of imports to Terrafame will generate EUR 7.62 of exports.
About the report
The impacts detailed in the report were assessed using a resource flow model based on input-output methods. The model can be used to assess the impacts of Terrafame's mine and metals recovery plant also taking into consideration the production and consumption multiplier effects.
Total impact generated from direct and multiplier effects
Terrafame's direct impacts on the economy are produced when Terrafame's operations increase the total output. The total output represents the value of production. From the point of view of a company or an industry, the total output is the sum of output sold to other companies and/or to consumption and output retained for own use. Total output can be considered to represent revenue on an income statement.
Direct impacts include employment impact, compensation of employees, growth of exports, value added, etc. Terrafame's mine and metals recovery plant also affect the gross domestic product (GDP), which represents the combined value of items and services produced. In addition to GDP, the report has looked into total output, because it better represents intermediate consumption important in the region, meaning those items and services that companies in the region sell as input to other companies in the region.
In addition to direct impacts, Terrafame's operations generate indirect production multiplier effects, meaning demand in several other industries. Thus, the supply chain required by Terrafame's production also affects the economy.
Impacts on total output will also be generated through compensation of employees increased due to Terrafame's operations, whereupon regional consumption will increase and produce new demand. As a result of these consumption multiplier effects, more production will be needed than the original direct increase of the multiplier effects of demand and production.
Direct and multiplier effects will affect the total output and will have, amongst other things, employment impacts. The employment and other socio-economic impacts result from the fact that as production increases, the need for labour input and, through it, economic activity, will increase in Kainuu and in the whole of Finland.
In connection with the report, the impact of the mine and the metals recovery plant on the value added, municipal, commodity and production taxes were assessed in a production situation in 2019–2023 as outlined in Terrafame's strategy. Terrafame would then produce approximately 36,000 tonnes of nickel and 78,000 tonnes of zinc per year. In the report, the impacts on the economy were compared to a scenario in which there were no mining operations in the region. The impacts were estimated in the form of yearly effects at the price level of 2016.
Appendix 2: Ramboll Finland Oy's report (in Finnish)
Terrafame Group Ltd., Matti Hietanen, CEO, tel. +358 40 823 8806
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 multi-metal 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.