Terrafame: the prerequisites for profitable mining operations strengthened significantly in the third quarter 7.11.2016 13:05

Ramp-up and operations of the mine in brief:

In July–September 2016, the ramp-up and operations of the Terrafame mine continued to proceed according to plans. The most central production goals were met and costs were below budget in the third quarter. In addition, the water situation at the mine improved significantly.

 

  • The amount of ore stacked on the primary heaps in January–September totalled 10.1 million tonnes. In July–September, a total of 4.3 million tonnes was stacked (Q2 2016: 3.1).
  • A total of 5,679 tonnes of nickel and 13,895 tonnes of zinc were produced during the January–September period. In July–September, 2,370 tonnes of nickel (Q2 2016: 1,754) and 6,328 tonnes of zinc (Q2 2016: 4,070) were produced.
  • The net sales of Terrafame Ltd. in the January–September period were EUR 53.3 million. In July–September, the net sales amounted to EUR 21.2 million (Q2 2016: 18.0).
  • In January–September, EBITDA was negative EUR 136.4 million, which was EUR 13.0 million better than budgeted. In July–September, EBITDA was negative EUR 38.5 million (Q2 2016: -44.8).
  • Terrafame has continued active measures to improve occupational safety. The lost time injury frequency was 10.3 per million working hours in January–September (January–June 2016: 12.3).
  • The water situation at the mine has improved significantly. By the end of September, the amount of water at the mine had decreased by nearly a half to 5.5 million cubic metres from the about 10 million cubic metres a year ago. At the end of the second quarter, the amount of stored water totalled 7.2 million cubic metres. The amount of water has efficiently decreased further during October.
  • Terrafame initiated two environmental impact assessment (EIA) programmes  concerning water management at the mine and the entire mine’s operations. Based on the results of these environmental impact assessment programmes, the company will apply for a new environmental permit by August 2017 at the latest.

 

Terrafame Ltd.’s CEO Joni Lukkaroinen:

“The ramp-up of the mine has continued efficiently, and we are firmly on the way to secure profitable mining operations. We achieved our key production targets also in the third quarter. We stacked 4.3 million tonnes of ore on the primary leaching heap. We produced 2,370 tonnes of nickel and 6,328 tonnes of zinc.

Since the start of Terrafame’s operations in September 2015 until the end of September 2016, 14.2 million tonnes of ore had been stacked on the primary leaching heaps. About 60 per cent of the primary leaching heap area has now been constructed. Bioheapleaching has performed according to the 70 per cent total leaching recovery rate or even better.

In the third quarter, the sale and deliveries of nickel and zinc continued according to plans. The demand for nickel has continued to show strong growth: global demand for nickel in stainless steel production increased by 6.1 per cent in Q3 2016 year over year. At the end of September, the nickel stock levels at the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) were 473,000 tonnes combined, which is approximately 3.4 per cent less than in the beginning of 2016. Increase in the market price of nickel began in the summer and, by the end of September 2016, the price of nickel was USD 10,460 per tonne. The market price of zinc has also increased strongly and was USD 2,378 per tonne by the end of September.

In January–September, EBITDA was negative EUR 136.4 million, which was EUR 13.0 million better than budgeted. The most important 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 proceeds in January–September exceeded the budget by EUR 4.0 million.

The systematic work to develop occupational safety has continued. In January–September, the lost time injury frequency was 10.3 injuries per million working hours. Despite the proactive work done, two lost time injuries occurred during the July–September period. The personnel is very committed to developing occupational and environmental safety.

The amount of water at the mine area has developed positively during the year. The amount of water decreased by almost a half during the summer and autum, and it was 5.5 million cubic metres at the end of September. In the third quarter, we continued to install equipment into the new centralised water treatment plant. The plant will be put into operation in November and it will further improve water purification and environmental safety, and it will also enable operational cost savings.

In January–September, rainfall has been at a normal level. Water evaporation from the leaching heaps has been efficient thanks to well-functioning bioheapleaching and heat production related to it. In addition, Terrafame has been able to utilise the larger sulphate emission quota for the summer during the May–November period, granted by the Vaasa Administrative Court.

In January–September 2016, Terrafame used 9,500 tonnes of its annual sulphate quota of 15,000 tonnes to be discharged into Lake Nuasjärvi. The company has also utilised its reverse osmosis plant to lead 0.4 million cubic metres of reject containing sulphate into the bioleaching circulation in March–September. As a result, it has been possible to return and precipitate nearly 4,200 tonnes of sulphate in total to the leaching heaps. A total of about 1.5 million cubic metres of additional water has been led to the bioleaching circulation from the pit. The reject of the reverse osmosis and leading mine water to the bioleaching circulation have a great significance for the sufficiency of the suplhate quota as well as the mine’s water balance.

The amount of the pregnant leach solution (PLS) stored in the pools has decreased from 840,000 cubic metres to 360,000 year over year. This level which is optimal for ensuring production efficiency and environmental safety was maintained in the third quarter as well.”

Production situation

In summer 2016, a group of external experts carried out an assessment of the mine’s mineral resources and ore reserves. According to the reviewed estimates, the ore reserves enable several decades of operations for the mine.

During January–September, Terrafame produced a total of 10.1 million tonnes of ore. In July–September, a total of 4.3 million tonnes of ore (Q2 2016: 3.1 million tonnes) was produced.

In January–September, the amount of nickel in the mined and stacked ore was 25,285 tonnes and the amount of zinc 48,155 tonnes. In July–September, the amount of stacked nickel was 10,894 tonnes (Q2 2016: 7,761 tonnes) and the amount of zinc 20,612 tonnes (Q2 2016: 14,767 tonnes).

The bioleaching process has continued even stronger than expected. The total recovery rate of nickel developed well by the end of September 2016. Terrafame’s business plan is based on a total metals recovery rate of 70 per cent. In January–September, the amount of leached nickel was 6,699 tonnes and the amount of leached zinc 17,171 tonnes. In July–September, the amount of leached nickel was 3,046 tonnes (Q2 2016: 2,158 tonnes), and the amount of zinc was 8,720 tonnes (Q2 2016: 5,873 tonnes).

In January–September, Terrafame produced 5,679 tonnes of nickel. In July–September, a total of 2,370 tonnes of nickel (Q2 2016: 1,754) was produced. 13,895 tonnes of zinc was produced in January–September and 6,328 tonnes in July–September (Q2 2016: 4,070). The second production line, put into operation in October, will almost double the monthly production volume.

In September–October, the yearly maintenance shutdown of the metals recovery plant was carried out. In addition, the mine’s emergency power supply was tested for the first time in the mine’s entire operating history due to which the ore stacking was interrupted for one day in September.

Market development

At the end of September 2016, nickel price was USD 10,460 per tonne (USD 9,415 at the end of June). Strong growth in demand for nickel continued during the summer months. Demand for nickel in stainless steel production increased by 6.1 per cent in Q3 2016 year over year. In January–September, the nickel stock levels at LME and SHFE decreased by 3.4 per cent to 473,000 tonnes.

Zinc price has shown very strong growth during the summer and autum, standing at USD 2,378 per tonne at the end of September (USD 2,102 at the end of June). Demand for zinc has remained steady during the first half of 2016. In Q2 2016, zinc mine production decreased by 13.0 per cent year over year. At the end of September, the zinc stock levels at LME totalled 439,000 tonnes (463,000 tonnes at the end of December 2015).

Financial situation

Terrafame Ltd.’s net sales from metal product deliveries amounted to EUR 53.3 million in January–September and to EUR 21.1 million in July–September (Q2 2016: 18.0).

Regardless of the price development of metals, mine operations incur costs that are heavily front-loaded, especially during the first year of ramp-up. However, the unit costs of production have, as planned, decreased significantly as the ramp-up has progressed, and they are expected to continue decreasing during the rest of the year as production volumes increase with the implementation of the second production line at the metals recovery plant. In January–September, EBITDA was EUR -136.4 million and, in July–September, EUR -38.5 million (Q2 2016: -44.8).

In January–September, the investment expenditure was EUR 48.7 million, of which EUR 18.1 million was accrued in July–September (Q2 2016: 19.8). Major investments in 2016 include the construction work related to the expansion of the secondary leaching fields and the centralised water treatment plant that will be put into operation in November.

Process for continued financing

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 (EIA) that the closure might require, have been started.

“In August 2015, Terrafame started the production ramp-up as a new company in a situation where the mining operations had been suspended for a long time. At the same time, the company inherited considerable environmental challenges. Terrafame has now completed about 15 months of ramp-up and metals production which have progressed strongly as planned. In addition, the company has the environmental matters under control,” says Lauri Ratia, Chairman of the Board of Terrafame Ltd.

“Target setting and operating accordingly has enabled us to start seeking for private financing in early autumn 2016 in order to complete the ramp-up in a situation where the company has clearly proven that the production ramp-up has progressed according to plan. This is the foundation to ensure investors’ interest,” continues Ratia.

“The central risks linked with Terrafame as an investment have now substantially decreased compared to when the company was starting operations in August 2015. During the global financing process, we have been in contact with a significant number of parties deemed to have sufficient financial resources, know-how as well as industrial and other interest in Terrafame,” says Matti Hietanen, CEO of parent company Terrafame Group Ltd.

“Securing private financing in similar cases often takes up to a year. During the autumn, the process has proceeded as planned and on schedule. We confidently continue the intensive work to ensure financing within the time limit decreed by the state. Our target is to achieve a financing solution with terms that can be critically reviewed in retrospect as well,” concludes Hietanen.

Environmental safety

Terrafame took over responsibility for the mine in 2015 in a highly challenging situation in which the bioleaching solution volumes were 840,000 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 September, there were approximately 5.5 million cubic metres of water stored in the mining area and approximately 360,000 cubic metres in the circulating bioleaching solution which is at an optimal level for ensuring production efficiency and environmental safety. Thanks to well-functioning bioleaching, a total of 1.5 million cubic metres of water have been led to the solution circulation of production during 2016.

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. Terrafame operates according to valid environmental permits and follows the emission quotas decreed by the Administrative Court. The quotas have enabled controlled improvement of the water situation which has resulted in the amount of water in the mining area to decrease significantly during the summer and autumn. According to the company’s current estimation, there will be no need for additional discharges of purified waters during the coming winter and spring 2017, thanks to the well-functioning bioleaching in particular.

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

Based on measurements performed in Terrafame’s mandatory monitoring, the autumn circulation of Lake Nuasjärvi has been successful. The water layers at the surface and at the bottom have blended well, meaning that there is no layering in the depressions. The concentrations in the water from the discharge pipe leading into the lake have continued to be clearly below the limits stated in the 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 has continued, and lost time injury frequency was 10.3 at the end of September. Measures, such as personnel training, the management’s weekly safety rounds, the foremen’s and employees’ regular safety meetings and a safety bonus, have been implemented to improve occupational safety.

Personnel

At the end of September 2016, the total number of Terrafame employees was 641 persons (674 persons at the end of June). Employee training has focused especially on occupational safety and managerial duties. Including the contractors in the mining area, approximately 990 persons worked at the mine at the end of September 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 was put into operation in October 2016, thereby increasing the production volumes. The production target for nickel is 11,500 tonnes in 2016 and for zinc 24,700 tonnes in 2016. According to the company’s current estimate, it is likely that the production volume of nickel will not quite reach the 2016 target whereas the production volume of zinc will slightly exceed the target.

Terrafame has reviewed the production targets of the coming years and for nickel they are 24,000 tonnes in 2017, 30,000 tonnes in 2018 and 35,000 tonnes from 2019 onwards while for zinc the targets are 58,000 tonnes, 67,000 tonnes and 75,000 tonnes from 2019 onwards.

In cooperation with its parent company Terrafame Group Ltd., Terrafame Ltd. will continue the process to strengthen the financial base and widen the ownership structure of Terrafame Ltd. The company estimates that the prerequisites to safeguard  private financing by the end of 2016 look possible.

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

Lauri Ratia, Chairman of the Board of Terrafame Ltd., tel. +358 50 2922, ratia@lauriratia.com

Matti Hietanen, CEO of Terrafame Group Ltd., tel. +358 40 823 8806, matti.hietanen@terrafamegroup.fi

 

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