Talvivaaran Kaivososakeyhtiö Oyj : Talvivaara Mining Company Interim Report for January-March 2013 Stock Exchange Release Talvivaara Mining Company Plc 24 April 2013 Talvivaara Mining Company Interim Report for January-March 2013 Financing transactions to secure liquidity for continued ramp-up Operational focus on achieving a sustainable water balance Highlights oNickel production of 2,732t, impacted by continued water balance challenges and the effect of excess water on bioheapleaching oNet sales of EUR 27.6 million oOperating loss of EUR (20.0) million oPurification and discharge of excess water from the mine site commenced in March utilising the additional 1.8Mm3 discharge quota granted by the Kainuu Centre for Economic Development, Transport and the Environment ("Kainuu ELY Centre") in February 2013 Financing transactions A number of financing arrangements undertaken to de-risk Talvivaara's balance sheet, secure liquidity for the continued ramp-up of operations towards full capacity and provide an appropriate capital structure to enable repayment or refinancing of short- and medium-term indebtedness, including the remaining EUR 76.9 million convertible bond maturing in May 2013. The financing transactions consist of: oFully underwritten rights issue to raise approximately EUR 261 million in gross proceeds oRenegotiated EUR 100 million revolving credit facility oIncrease of advance payment from Cameco by USD 10 million to USD 70 million oEUR 12 million additional up-front payment from Nyrstar Events after the reporting period oOversubscribed EUR 261 million rights issue completed; trading in new shares commenced on 17 April 2013 oGypsum pond leakage detected on 7 April 2013 and stemmed on 9 April 2013; all leakage waters contained within the mining area oOre production operations expected to be re-started in May, approximately 1.5 months ahead of earlier plans; temporary lay-offs announced in February cancelled due to mining re-start Production guidance 2013 full-year nickel production guidance of 18,000t re-iterated; return to a clear ramp-up anticipated in the second half of the year following re-start of mining in May and improving water balance situation Key figures EUR million Q1 Q4 Q1 FY 2013 2012 2012 2012 Net sales 27.6 25.7 39.0 142.9 Operating profit (loss) (20.0) (57.0) (11.4) (83.6) % of net sales (72.4)% (221.9)% (29.3)% (58.5)% Profit (loss) for the period (23.9) (59.4) (14.9) (103.9) Earnings per share, EUR (0.09) (0.22) (0.06) (0.38) Equity-to-assets ratio 25.5% 24.3% 31.8% 24.3% Net interest bearing debt 530.1 563.8 422.2 563.8 Debt-to-equity ratio 159.1% 183.8% 107.9% 183.3% Capital expenditure 17.3 29.6 14.7 97.5 Cash and cash equivalents at the end of the 68.7 36.1 85.9 36.1 period Number of employees at the end of the period 583 588 498 588 All reported figures in this release are unaudited. CEO Pekka Perä comments: "In February, we announced extensive financing arrangements to improve our liquidity position and de-risk our balance sheet. The central element of the financing package was an underwritten rights issue to our shareholders to raise approximately EUR 261 million. The rights issue was successfully completed in April, and I am especially pleased to note that the transaction was oversubscribed. Operationally, our focus during the first quarter was on resolving the prevailing water balance challenges. We commenced the discharge of purified excess waters into the environment in order to prepare for the spring melt and ensure sufficient safety capacity. With the spring melt having commenced, we are confident that the safety capacity is now sufficient. However, we will need to continue discharging excess waters in order to further moderate the operational and environmental risk levels. Beyond resolving the short-term water balance issue, we are also focusing on implementing a sustainable long-term water balance and taking all necessary measures to ensure we can avoid similar problems in the future. In line with our expectations, metals production output in the first quarter continued to be impacted by depressed metal grades in leach solution, stemming from excess water in circulation and related aeration challenges. Whilst we expect a material improvement in bioheapleaching performance to take some months, we have seen encouraging developments in heap sections where aeration and irrigation improvements have been made and water content has been restored to a more normal level. While ore production has been suspended, we have also carried out extensive development work to improve our understanding of the bioleaching process and believe we have found ways to improve the stability and predictability of the bioleaching performance going forward. We have also recently announced the intention to re-start ore production in May ahead of earlier plans, which will both help with water balance management as new ore ties up a significant amount of water and support the achievement of our production targets. Our financial performance remained disappointing, reflecting the achieved production levels and the depressed nickel price environment. The nickel market showed some signs of improvement early in the year, but the nickel price has since declined back to around USD 16,000/t in early April amid record stock levels at the London Metal Exchange. Whilst short-term visibility is very limited, we continue to believe in strong longer-term nickel market fundamentals. Finally, I would like to sincerely thank our shareholders for their continued support for Talvivaara through these challenging times, as well as our team and advisors for their hard work and dedication. We will use the proceeds from the completed rights issue to resolve our short-term challenges and continue the ramp-up of production towards full capacity. Our clear vision continues to be for Talvivaara to become a successful and internationally significant player in the mining industry, and today Talvivaara is at a new beginning." Enquiries: Talvivaara Mining Company Plc. Tel. +358 20 712 9800 Pekka Perä, CEO Saila Miettinen-Lähde, Deputy CEO and CFO College Hill Tel. +44 20 7457 2020 David Simonson Anca Spiridon Webcast and conference call on 24 April 2013 at 1:00pm EET / 11:00am BST A combined webcast and conference call on the January-March 2013 Interim Result will be held on 24 April 2012 at 1:00pm EET / 11:00am BST. The call will be held in English. The webcast can be accessed through: http://qsb.webcast.fi/t/talvivaara/talvivaara_2013_0424_q1/ A conference call facility will be available for a Q&A with senior management following the presentation. Participant - Finland: +358 (0)9 2313 9201 Participant - UK: +44 (0)20 7162 0077 Participant - US: +1 334 323 6201 Conference ID: 931705 The webcast will also be available for viewing on the Talvivaara website shortly after the event. Financial review Q1 2013 (January-March) Net sales and financial result Talvivaara's net sales for nickel and cobalt deliveries to Norilsk Nickel and for zinc deliveries to Nyrstar during the quarter ended 31 March 2013 amounted to EUR 27.6 million (Q1 2012: EUR 39.0 million). Most of the net sales for the three months came from nickel. Only one zinc delivery took place during the period, amounting to 2,217t in February 2013, and due to high moisture content some zinc was stored at the Kokkola port until the product is sufficiently dry for transportation. Compared to Q4 2012, net sales increased by 7.4% primarily due to increased nickel product deliveries. However, the increase in nickel deliveries was partially offset by a lower nickel price. Product deliveries in Q1 2013 amounted to 2,746t of nickel, 88t of cobalt and 2,217t of zinc (Q1 2012: 3,522t of nickel, 8,333t of zinc, 96t of cobalt). The Group's other operating income amounted to EUR 0.7 million (Q1 2012: EUR 1.4 million) and mainly resulted from indemnities on property damages. Changes in inventories of finished goods and work in progress amounted to EUR 7.3 million (Q1 2012: EUR 22.5 million). Due to the temporary suspension of mining and crushing operations, no new ore was stacked during Q1 2013 and the increase in work in progress was therefore smaller than during normal operations. Personnel expenses were EUR (7.3) million in Q1 2013 (Q1 2012: EUR (7.8) million). The personnel expenses based on options granted to employees decreased by EUR 1.0 million compared to Q1 2012. In addition, there was an increase of EUR 0.5 million in wages and salaries due to increased number of personnel. The increase was partially offset by temporary lay-offs, which Talvivaara started in February 2013. Operating loss for Q1 2013 was EUR (20.0) million (Q1 2012: EUR (11.4) million). Materials and services were EUR (22.6) million in Q1 2013 (Q1 2012: EUR (34.9) million) and other operating expenses were EUR (12.6) million (Q1 2012: EUR (18.9) million). The largest cost items were production chemicals, external services, electricity and maintenance. Mining and materials handling costs were lower than in Q1 2012 due to the temporary suspension of ore production. In metals recovery, costs were higher than in the previous year due to increased hydrogen sulphide and hydrogen peroxide consumption as a result of inefficiencies caused by low metal grades in feed solution and low solution temperatures. Furthermore, certain process change trials resulted in temporarily increased usage of sodium hydroxide in January and February 2013. Finance income for Q1 2013 was EUR 0.3 million (Q1 2012: EUR 1.7 million). Finance costs of EUR (12.1) million (Q1 2012: EUR (9.6) million) were mainly related to interest and related financing expenses on borrowings. Loss for the period and the total comprehensive income amounted to EUR (23.9) million (Q1 2012: EUR (14.9) million) reflecting the relatively low nickel price, high maintenance costs and only moderate amounts of product deliveries. Earnings per share were EUR (0.09) in Q1 2013 (Q1 2012: EUR (0.06)). Balance sheet Capital expenditure in Q1 2013 totalled EUR 17.3 million (Q1 2012: EUR 14.7 million). The expenditure primarily related to water management, uranium extraction circuit and secondary leaching. On the consolidated statement of financial position as at 31 March 2013, property, plant and equipment totalled EUR 813.6 million (31 December 2012: EUR 809.5 million). In the Group's assets, inventories amounted to EUR 306.5 million on 31 March 2013 (31 December 2012: EUR 297.8 million). The increase in inventories reflects the continuing ramp-up of production and the consequent increase in the amount of ore stacked on heaps, valued at cost. The temporary suspension of ore production reduced the rate of increase in inventories in Q1 2013. Trade receivables amounted to EUR 22.4 million on 31 March 2013 (31 December 2012: EUR 32.2 million). The decrease compared to the previous year was attributable to the sale of trade receivables, which commenced in December 2012. On 31 March 2013, cash and cash equivalents totalled EUR 68.7 million (31 December 2012: EUR 36.1 million). The cash position included a proportion of the funds raised through the underwritten approximately EUR 261 million rights issue announced on 14 February 2013. On 31 March 2013, the funds raised amounted to EUR 54.8 million corresponding to 342.7 million new shares. In equity and liabilities, total equity amounted to EUR 333.1 million on 31 March 2013 (31 December 2012: EUR 306.8 million). By 31 March 2013, the net proceeds of EUR 49.5 million from the rights issue had been recognised in equity. In addition, interest cost of EUR 3.1 million of a perpetual capital loan was capitalized in equity in February 2013. Provisions decreased from EUR 27.5 million on 31 December 2012 to EUR 21.8 million at the end of March 2013. The costs related to water management and the gypsum pond leakage of November 2012 amounted to EUR 5.9 million in Q1 2013 and the corresponding provisions were de-recognised. The incurred costs came from the treatment of excess waters with limestone and milk of lime. In addition, treatment of contaminated soil downstream of the Kortelampi dam commenced by removal of trees and dewatering of the area. Borrowings decreased from EUR 599.8 million on 31 December 2012 to EUR 598.8 million at the end of March 2013. The changes in borrowings during Q1 2013 mainly related to finance lease liabilities. Total advance payments as at 31 March 2013 amounted to EUR 291.9 million, representing an increase of EUR 18.2 million from EUR 273.7 million on 31 December 2012. During Q1 2013, Talvivaara received a total of EUR 7.4 million in advance payments from Cameco Corporation based on the amended uranium off-take agreement between the companies. In addition, EUR 12.0 million in advance payments was received from Nyrstar based on the amendment agreement regarding the zinc in concentrate streaming agreement (see section "Financing"). The advance payment from Nyrstar was also amortised by EUR 1.2 million as a result of zinc deliveries. Total equity and liabilities as at 31 March 2013 amounted to EUR 1,307.0 million (31 December 2012: EUR 1,260.8 million). Financing On 12 February 2013, Talvivaara Sotkamo entered into an amendment agreement with Cameco concerning the uranium take-in-kind agreement pursuant to which the amount of the up-front investment that Cameco is to pay to Talvivaara Sotkamo for the construction of the uranium extraction facility was increased by USD 10 million to USD 70 million. In addition, the duration of the agreement was extended to 31 December 2017 and commercial terms revised accordingly. Talvivaara received the additional up-front investment in February 2013. On 14 February 2013, Talvivaara Sotkamo entered into an amendment agreement with Nyrstar regarding the zinc in concentrate streaming agreement pursuant to which Nyrstar made an additional up-front payment of EUR 12 million to Talvivaara Sotkamo in return for Talvivaara Sotkamo agreeing not to charge Nyrstar the EUR 350 per tonne extraction and processing fee on the next 38,000 tonnes of zinc in concentrate delivered to Nyrstar as was agreed in the original zinc in concentrate streaming agreement. The up-front payment was received in February 2013. On 8 March 2013, an Extraordinary General Meeting of Talvivaara Mining Company resolved to approve the proposal by the Board of Directors to authorise the Board of Directors to undertake a share issue for consideration pursuant to the shareholders' pre-emptive subscription rights. The underwritten share issue was finalised in April and all 1,633,857,840 new shares offered in the rights issue were subscribed for. The gross proceeds amounted to approximately EUR 261 million. The total number of shares in Talvivaara Mining Company increased to 1,906,167,480 shares. The share issue was recognised in the Q1 2013 results as described above in section "Balance sheet". Production review During the first quarter, Talvivaara continued to focus on overall water balance management of the operation and commenced the discharge of purified excess waters from the mine site. Whilst availability of the metals recovery plant continued to be at a good level during the quarter, metal grades in leach solution remained, as expected, depressed impacting metals production. Zinc production during the quarter was impacted by technical issues resulting in zinc being lost in thickener overflows. The causes for the issue have been identified and impact on zinc production is being mitigated through, for example, modified leaching section pumping arrangements. Talvivaara's metals production output in the first quarter amounted to 2,732t (Q1 2012: 3,374t) of nickel and 3,128t (Q1 2012: 7,890t) of zinc. In metals recovery, significant progress continued to be made in improving and maintaining plant stability and availability. In line with Talvivaara's operational excellence approach, multiple new processes and metrics have been developed to monitor and improve the production process and plant efficiency. These improvements have significantly enhanced the ability to determine, anticipate and remove any process disturbances ensuring a high plant utilisation rate. Talvivaara reached an average hourly leach solution flow rate through the plant of approximately 1,300 m3/h in the first quarter, representing a 30% increase compared to approximately 1,000 m3/h in 2012. A record monthly average solution flow rate of 1,422 m3/h was achieved in January. As expected, water balance challenges continued to impact bioheapleaching performance. The excess water in the solution circuit and reduced evaporation diluted metal grades in leach solution, and the high water content in the heaps also negatively affected leaching performance by reducing the efficiency of aeration. The nickel grade in solution pumped to the metals recovery plant varied between 1.1 g/l and 1.3 g/l in the first quarter, compared to an average of approximately 1.3 g/l in the fourth quarter of 2012. Talvivaara has placed significant emphasis on improving the leaching process through, for example, maintenance and modification of irrigation and aeration systems and obtained encouraging results in re-activating the leaching process in heap sections from which excess water has been removed and in which aeration has been improved. Furthermore, extensive development work has been carried out in order to increase the overall understanding of the leaching process and to achieve better predictability and consistency of the leaching performance. Critical operating variables have been verified by methods such as statistical data analysis andsmall and industrial scale trials. Upon the planned re-start of mining and stacking of new ore in May 2013, increased attention will also be paid on the properties of the ore under leaching, with key parameters including grade, mineralogical composition and agglomerate quality. In ore production, as previously announced, mining and crushing operations remained suspended during the first quarter due to excess water being stored in the Kuusilampi open pit. Accordingly, no ore or waste was produced. In January, following co-operation consultations, Talvivaara announced temporary lay-offs of 184 employees to adjust the level of personnel to the temporarily suspended ore production. Talvivaara started to de-water the open pit during the quarter, and total water volume in the pit amounted to 1.5-1.6 million m3 at the end of the quarter. Despite the suspension of ore production, Talvivaara continued to carry out and focus on primary heap reclaiming during the quarter and a new jaw crusher was commissioned in order to ensure sufficient reclaiming capacity. Production key figures Q1 Q4 Q1 FY 2013 2012 2012 2012 Mining Ore production Mt - - 3.0 8.7 Waste production Mt - 1.2 1.5 5.3 Materials handling Stacked ore Mt - - 3.0 8.7 Bioheapleaching Ore under leaching Mt 44.3 44.3 38.6 44.3 Metals recovery Nickel metal content Tonnes 2,732 2,317 3,374 12,916 Zinc metal content Tonnes 3,128 4,106 7,890 25,867 Water management - Operation Otter In order to facilitate an efficient and sustainable solution to the prevailing water balance issues, Talvivaara has established a special task force, Operation Otter. Operation Otter is headed by Ms Maija Vidqvist, General Manager, Water Management. Several of Talvivaara's key experts have been seconded to the team, which focuses on the planning and execution of necessary water storage and pumping arrangements and waste water treatment measures to secure a sustainable water balance at the mine. In order to reach a sustainable water balance situation and lower environmental and operational risk levels, Talvivaara believes that it must purify and release into the environment approximately 3.8 million m3 of water, a substantial portion of which is rain and natural catchment water that has accumulated at the mine area over time. Based on the Kainuu ELY Centre decision on 12 February 2013, Talvivaara currently has a permit to discharge 1.8 million m3 of purified waste water into the Vuoksi and Oulujoki waterways, such that 0.9 million m3 is discharged into each direction by 30 June 2013. Additionally, Talvivaara can continue discharging water within the annual 1.3 million m3 discharge quota under its existing environmental permit. Talvivaara considers the Kainuu ELY Centre permit for additional water discharge and the 1.3 million m3 quota in the existing environmental permit adequate for the implementation of planned water management arrangements in the short term. Talvivaara commenced the discharge of purified waters in March, following commissioning of additional water treatment units. The levels of harmful substances in discharged waters have been clearly below the limit values set in Talvivaara's environmental permit. Water quality has remained consistent and quality monitoring is carried out continuously. In order to enable necessary water discharge measures beyond the currently allowed quotas, Talvivaara has applied to have the annual 1.3 million m3 water discharge limit removed from its current environmental permit and, as a secondary request, applied for a right to discharge the excess waters that have accumulated at the mine in addition to the annual discharge limit. The Regional State Administrative Agency for Northern Finland ("AVI") has informed Talvivaara that the decision would be made in the spring. In the medium term, Talvivaara's goal is to implement a closed water circuit, which is expected to reduce the risk of weather conditions impacting Talvivaara's operations and consequently in the long term benefit environmental safety. Key elements of the targeted closed water circuit include ceasing or materially reducing raw water intake from nearby lakes, additional treatment of process waters using reverse osmosis technology, and more efficient separation of process waters from captured rain and natural run-off waters. Overall, Talvivaara believes that the necessary equipment and structures are already in place to achieve a closed water circuit. However, the excess water currently at the mine has to be purified and discharged from the mine and the overall water balance must reach a sustainable level before a closed water circuit can be achieved. Sustainable development, safety and permitting Safety With respect to safety issues, Talvivaara's goal is a safe and healthy working environment, and the Company continued to develop its safety culture based on zero accident philosophy. At the end of the first quarter, the injury frequency among the Talvivaara personnel was 15.7 lost time injuries/million working hours on a rolling 12 month basis (31 March 2012: 11.8 lost time injuries/million working hours). Environment Talvivaara continues to focus on minimising the environmental impact of its operations. Current primary focus is on water balance management and purification and discharge of excess waters from the mine site. The environmental impact of the release is anticipated to be mainly caused by its sulphate content, whereas Talvivaara expects any metal burden to the environment to remain limited and within the limits set by its current environmental permit. Talvivaara considers the discharge of excess water from the mine site without delay to be necessary in order to reduce the environmental and operational risk levels, and to secure sufficient water management safety capacity. Hydrogen sulphide (odour) emissions have been largely addressed. Odour complaints from nearby residents have reduced substantially, and there were only five complaints in the first quarter of 2013. Dust emissions were addressed through the commissioning of a new dust removal system at the screening hall in 2012. In line with Talvivaara's commitment to continuous improvement, several technological solutions are being studied to further reduce dust emissions. Talvivaara places significant emphasis on timely and transparent communication on environmental matters with the neighbouring communities and other interested stakeholders. Open days for public at the mine site were again arranged on 15-16 March 2013 and discussion panels in nearby towns were held in line with previous practice. The locally focused Finnish language website www.paikanpaalla.fi continued to be successfully used for the delivery of locally relevant, timely information and for interaction with interested stakeholders. Permitting Talvivaara's existing environmental permit is currently being renewed under a standard process. The renewed permit is anticipated to be received during the third quarter of 2013. However, the AVI has informed Talvivaara that a decision on the removal or amendment of the annual water discharge quota in the existing environmental permit would be made separately already in the spring. The environmental permit application for the planned uranium extraction is also being processed by the AVI and a decision on it is expected before or concurrently with the renewal of the general environmental permit. In addition, Talvivaara has filed an application for a chemical permit relating to uranium recovery, which is currently pending. Additionally, Talvivaara continued to progress the Environmental Impact Assessment for production expansion during the first quarter and received the REACH authorisation for selling its copper product in the European Union. Business development and commercial arrangements Planned uranium extraction and uranium off-take agreement with Cameco Talvivaara is preparing for the recovery of uranium as a by-product of the Company's existing operations. Uranium occurs naturally in small concentrations in the Talvivaara area and leaches into the process solution along with Talvivaara's other products. Annual uranium production is estimated at ca. 350tU (ca. 770,000 pounds), corresponding to approximately 410t (900,000 pounds) of yellow cake (UO). Talvivaara's entire uranium production will be sold under a long-term agreement to Cameco. The uranium recovery facility is essentially completed, and commissioning is expected following the receipt of remaining required permits. Risk management and key risks In line with current corporate governance guidelines on risk management, Talvivaara carries out an on-going process endorsed by the Board of Directors to identify risks, measure their impact against certain assumptions and implement the necessary proactive steps to manage these risks. Talvivaara's operations are affected by various risks common to the mining industry, such as risks relating to the development of Talvivaara's mineral deposits, estimates of reserves and resources, infrastructure risks, and volatility of commodity prices. There are also risks related to counterparties, currency exchange ratios, management and control systems, historical losses and uncertainties about the future profitability of Talvivaara, dependence on key personnel, effect of laws, governmental regulations and related costs, environmental hazards, and risks related to Talvivaara's mining concessions and permits. In the short term, Talvivaara's key operational risks continue to relate to water management and the on-going ramp-up of operations. While the Company has demonstrated that all of its production processes work and can be operated on industrial scale, the rate of ramp-up is still subject to risk factors including the time required to reach a sustainable level of water balance, reliability and sustainable capacity of production equipment, and eventual speed of leaching and rates of metals recovery in bioheapleaching. In addition, there may be production and ramp-up related risks that are currently unknown or beyond the Company's control. The market price of nickel has historically been volatile and in the Company's view this is likely to persist, driven by shifts in the supply-demand balance, macroeconomic indicators and variations in currency exchange ratios. Nickel sales currently represent close to 90% of the Company's revenues and variations in the nickel price therefore have a direct and significant effect on Talvivaara's financial result and economic viability. Talvivaara is, since February 2010, unhedged against variations in metal prices. Full or substantially full exposure to nickel prices is in line with Talvivaara's strategy and supported by the Company's view that it can operate the Talvivaara mine, once it has been fully ramped up, profitably also during the lows of commodity price cycles. Talvivaara's revenues are almost entirely in US dollars, whilst the majority of the Company's costs are incurred in Euro. Potential strengthening of the Euro against the US dollar could thus have a material adverse effect on the business and financial condition of the Company. Talvivaara hedges its exposure to the US dollar on a case by case basis with the aim of limiting the adverse effects of US dollar weakness as considered justified from time to time. Liquidity and refinancing risks may arise as a result of the Company's inability to produce sufficient volumes of its saleable products, particularly nickel, unexpected increase in production costs, and sudden or substantial changes in the prices of commodities or currency exchange rates. Talvivaara seeks to reduce liquidity risk by close monitoring of liquidity in order to detect any threat of adverse changes in advance so as to allow for sufficient time to secure access to adequate credit or other funding on reasonable terms. Talvivaara also seeks to maintain a balanced maturity profile of its long-term debt in order to mitigate refinancing risks. Personnel and management Wages and salaries The number of personnel employed by the Group on 31 March 2013 was 583 (Q1 2012: 498). Wages and salaries paid during the three months to 31 March 2013 totalled EUR 6.0 million (Q1 2012: EUR 6.6 million). The salaries and wages of Talvivaara's personnel are based on industry-wide collective agreements. The total compensation consists of base salary and short and long term incentive schemes. Annual short term incentive metrics include personal performance and company-wide criteria. The Company's long term incentive schemes comprise Talvivaara's Stock Options 2007, Stock Options 2011 and Group personnel fund to manage the earnings bonuses paid by Talvivaara. In addition, the management holding company Talvivaara Management Oy is owned by executive management and certain other key employees. Management re-organisation Talvivaara re-organised its management during January and February 2013 as follows: oMr Pertti Pekkala, formerly General Manager, Research and Development, was appointed Chief Production Officer (Metals Recovery); oMr Kari Vyhtinen, formerly Chief Investment Officer, was appointed Chief Mining Officer; oMr Mikko Korteniemi, formerly Chief Production Officer (Metals Recovery), was appointed Chief Maintenance Officer with responsibility for maintenance, procurement and warehousing; and oMs Maija Vidqvist was appointed General Manager, Water Management (position previously held by Mr Jari Voutilainen) All four appointees are members of the Executive Committee, with Mr Pertti Pekkala and Ms Maija Vidqvist being new additions to it. Pertti Pekkala, Kari Vyhtinen and Mikko Korteniemi report to the COO, Mr Harri Natunen, and Maija Vidqvist reports to the CEO, Mr Pekka Perä Temporary lay-offs Talvivaara announced on 16 January 2013 that to support the Group's cost savings initiatives and overall efficiency, and to adjust the level of personnel to the temporarily suspended ore production, Talvivaara is considering temporary lay-offs. Co-operation consultations with employee representatives were held between 17 and 31 January 2013 concerning all personnel groups in all three corporate entities, Talvivaara Mining Company Plc, Talvivaara Sotkamo Ltd and Talvivaara Exploration Ltd. Following the consultations, Talvivaara decided to temporarily lay off 184 employees between 18 February and 30 June 2013. The maximum duration of the lay-off period was 90 days per individual employee (see "Events after the review period" for additional information on cancellation of temporarylay-offs and re-start of ore production). Shares and shareholders The number of shares issued and outstanding and registered on the Euroclear Shareholder Register as of 31 March 2013 was 272,309,640. Including the effect of the EUR 85 million convertible bond of 14 May 2008, the EUR 225 million convertible bond of 16 December 2010, the Option Schemes of 2007 and 2011, the authorised full number of shares of the Company amounted to 319,001,039. The share subscription period for stock options 2007B is between 1 April 2011 and 31 March 2013. No new shares of Talvivaara were subscribed for under the stock option rights 2007B in Q1 2013. A total of 2,284,337 stock option rights 2007B remained unexercised following the end of the subscription period and expired. A total of 2,327,000 option rights 2007C have been issued to employees and the subscription period for stock options 2007C is between 1 April 2012 and 31 March 2014. No new shares of Talvivaara were subscribed for under the stock option rights 2007C in Q1 2013 and a total of 2,327,000 stock options 2007C remain unexercised. A total of 1,347,500 option rights 2011B have been issued to key employees and the subscription period for stock options 2011B is between 1 April 2015 and 31 March 2017. A total of 1,347,500 stock options 2011B remain unexercised. In March 2013 an Extraordinary General Meeting of Talvivaara Mining Company resolved to approve the proposal by the Board of Directors to authorise the Board of Directors to undertake a share issue for consideration pursuant to the shareholders' pre-emptive subscription rights. The share issue was completed in April 2013, as described in "Events after the review period". As at 31 March 2013, the shareholders who held more than 5% of the shares and votes of Talvivaara were Pekka Perä (20.0%), Solidium Oy (8.9%), Varma Mutual Pension Insurance Company (8.7%) and Ilmarinen Mutual Pension Insurance Company (5.1%). Events after the review period Gypsum pond leakage On 7 April 2013, Talvivaara detected a leakage at the gypsum pond of the mine. The leakage was successfully stemmed on 9 April 2013. All leakage water was contained within the safety dams in the mine area, and Talvivaara estimates that the total volume of water that escaped from the gypsum pond was less than 400,000 m3. The leakage water will be treated at the Southern water treatment unit together with other excess waters, and following purification it will be discharged into the environment. Talvivaara's metals recovery plant was shut down for approximately one week following the leak, while pumping arrangements were being altered such that water purification capacity at the plant could be maximized and as much as possible of the treated water could also be discharged to the Northern direction. New arrangements for the safe utilization of the gypsum ponds following the leak were also implemented. Completion of the rights issue On 15 April 2013, Talvivaara announced the final results of the rights issue to raise approximately EUR 261 million in gross proceeds. All 1,633,857,840 new shares offered in the rights offering were subscribed for. A total of 1,419,673,290 shares were subscribed for pursuant to subscription rights, representing 86.9% of all the offer shares. Taking into account subscriptions received without subscription rights in the secondary subscription, the rights offering was oversubscribed. The underwriting provided by J.P. Morgan Securities plc, Nordea Bank Finland Plc, BofA Merrill Lynch, BNP PARIBAS and Danske Bank A/S, Helsinki Branch was not utilised. The new shares were registered with the Finnish Trade Register on 16 April 2013 and trading with the shares commenced on 17 April 2013. As a result of the rights offering, the total number of shares in Talvivaara increased to 1,906,167,480 shares. The offer shares carry the right to receive dividends and other distributions of funds, if any, and other shareholder rights in Talvivaara as of the registration of the offer shares with the Finnish Trade Register on 16 April 2013. Cancellation of temporary lay-offs and re-start of mining On 17 April 2013, Talvivaara announced the termination of the temporary lay-offs it had started in February 2013 in order to re-start currently suspended mining and materials handling operations during May 2013. The Company will commence mining at the Northern end of the Kuusilampi open pit, where the water level has declined such that preparations for the re-start of mining and crushing operations can commence. The open pit will continue to serve as water management safety capacity despite the commencement of preparations for re-starting mine production. The re-start of ore production approximately 1.5 months in advance of earlier plans improves the overall water balance of the mine, as new ore absorbs a significant amount of water, approximately 10-15% of ore mass, at the stacking phase. Adding new ore to the leaching process earlier than anticipated also supports the achievement of the Company's production targets and the progress of ramp-up in accordance with plans. The cancellation of the temporary lay-offs impacts 184 employees. Over half of the planned lay-offs had been carried out since February, as approximately 121 employees were temporarily laid off during February - April. Short-term outlook Operational outlook Talvivaara continues to anticipate producing approximately 18,000t of nickel and 39,000t of zinc in 2013. Metals production will continue to be impacted by water balance issues in the first half of the year, but is expected to return to a clear ramp-up during the remainder of the year driven by the re-start of ore production in May, approximately 1.5 months earlier than previously anticipated. Market outlook The LME nickel price reached a level of USD 18,000-19,000/t in late January and early February, driven by encouraging macroeconomic trends in China and globally as well as abating concerns over the European sovereign debt situation. However, the nickel price declined back to around USD 16,000/t by early April. Concerns over stainless steel utilisation rates and the build-up of global nickel inventories have weighed on the nickel price, as LME nickel inventories reached a record high of around 170,000t in April. Talvivaara expects nickel price volatility to remain elevated and the current high inventory levels and global economic uncertainty to limit the price upside in the near term. In the longer term, Talvivaara foresees the nickel industry fundamentals to support favourable nickel price development, driven by increasing marginal cost of production across the nickel industry and lack of new committed nickel projects to replace depleting supply after the next few years. Talvivaara continues to see the longer term nickel price support level at around USD 20,000/t. 24 April 2012 Talvivaara Mining Company Plc. Board of Directors CONSOLIDATED INCOME STATEMENT Unaudited Unaudited three three months to months to (all amounts in EUR '000) 31 Mar 13 31 Mar 12 Net sales 27,605 39,027 Other operating income 729 1,357 Changes in inventories of finished goods and work in progress 7,288 22,478 Materials and services (22,614) (34,921) Personnel expenses (7,285) (7,819) Depreciation, amortization, depletion and impairment charges (13,099) (12,664) Other operating expenses (12,612) (18,889) Operating profit (loss) (19,988) (11,431) Finance income 339 1,717 Finance cost (12,080) (9,646) Finance income (cost) (net) (11,741) (7,929) Profit (loss) before income tax (31,729) (19,360) Income tax expense 7,797 4,451 Profit (loss) for the period (23,932) (14,909) Attributable to: Owners of the parent (24,865) (13,561) Non-controlling interest 933 (1,348) (23,932) (14,909) Earnings per share for profit (loss) attributable to the owners of the parent (expressed in EUR per share) Basic and diluted (0.09) (0.06) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited Unaudited three three months to months to (all amounts in EUR '000) 31 Mar 13 31 Mar 12 Profit (loss) for the period (23,932) (14,909) Other comprehensive income, net of tax - - Total comprehensive income (23,932) (14,909) Attributable to: Owners of the parent (24,865) (13,561) Non-controlling interest 933 (1,348) (23,932) (14,909) CONSOLIDATED STATEMENT OF FINANCIAL POSITION Unaudited Audited (all amounts in EUR '000) 31 Mar 13 31 Dec 12 ASSETS Non-current assets Property, plant and equipment 813,604 809,452 Biological assets 8,894 9,125 Intangible assets 7,021 7,014 Investments in associates 6,180 5,694 Deferred tax assets 61,340 52,588 Other receivables 4,979 2,940 Available-for-sale financial assets 2 2 902,020 886,815 Current assets Inventories 306,463 297,761 Trade receivables 22,400 32,174 Other receivables 7,406 7,980 Cash and cash equivalent 68,691 36,058 404,960 373,973 Total assets 1,306,980 1,260,788 EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital 80 80 Share issue 49,463 - Share premium 8,086 8,086 Other reserves 542,255 539,559 Retained earnings (278,081) (251,365) 321,803 296,360 Non-controlling interest in equity 11,325 10,392 Total equity 333,128 306,752 Non-current liabilities Borrowings 505,044 506,028 Advance payments 272,881 265,847 Other payables 239 228 Provisions 11,395 11,290 789,559 783,393 Current liabilities Borrowings 93,710 93,793 Advance payments 19,027 7,857 Trade payables 26,088 25,577 Other payables 35,089 27,178 Provisions 10,379 16,238 184,293 170,643 Total liabilities 973,852 954,036 Total equity and liabilities 1,306,980 1,260,788 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY A Share capital B Share issue C Share premium D Invested unrestricted equity E Other reserves F Retained earnings G Total H Non-controlling interest I Total equity (all amounts in EUR '000) A B C D E F G H I 1 Jan 12 322, 80 278 8,086 404,070 45,462 (151,129) 306,847 15,733 580 Profit (loss) (14, for the period - - - - - (13,561) (13,561) (1,348) 909) Other comprehensive income - Other comprehensive income - - - - - - - - - Total comprehensive income for the (14, period - - - - - (13,561) (13,561) (1,348) 909) Transactions with owners Stock options - (278) - 579 - - 301 - 301 Perpetual capital loan - - - - 2,353 (1,777) 576 109 685 81, Share issue - - - 81,534 - - 81,534 - 534 Incentive arrangement for Executive Management - - - - 23 - 23 - 23 Employee share option scheme - value of employee 1, services - - - - 1,106 - 1,106 - 106 Total contribution by and distribution to 83, owners - (278) - 82,113 3,482 (1,777) 83,540 109 649 Total transactions 83, with owners - (278) - 82,113 3,482 (1,777) 83,540 109 649 31 Mar 12 391, 80 - 8,086 486,183 48,944 (166,467) 376,826 14,494 320 31 Dec 12 306, 80 - 8,086 490,749 48,810 (251,365) 296,360 10,392 752 1 Jan 13 306, 80 - 8,086 490,749 48,810 (251,365) 296,360 10,392 752 Profit (loss) (23, for the period - - - - - (24,865) (24,865) 933 932) Other comprehensive income - Other comprehensive income - - - - - - - - - Total comprehensive income for the (23, period - - - - - (24,865) (24,865) 933 932) Transactions with owners Perpetual capital loan - - - - 2,612 (1,851) 761 - 761 49, Rights issue - 49,463 - - - - 49,463 - 463 Incentive arrangement for Executive Management - - - - 23 - 23 - 23 Employee share option scheme - value of employee services - - - - 61 - 61 - 61 Total contribution by and distribution to 50, owners - 49,463 - - 2,696 (1,851) 50,308 - 308 Total transactions 50, with owners - 49,463 - - 2,696 (1,851) 50,308 - 308 31 Mar 13 333, 80 49,463 8,086 490,749 51,506 (278,081) 321,803 11,325 128 CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited Unaudited three three months to months to (all amounts in EUR '000) 31 Mar 13 31 Mar 12 Cash flows from operating activities Profit (loss) for the period (23,932) (14,909) Adjustments for Tax (7,797) (4,451) Depreciation and amortization 13,099 12,664 Other non-cash income and expenses (10,156) (5,785) Interest income (339) (1,717) Fair value gains on financial assets at fair value through profit or loss - (5) Interest expense 12,080 9,646 (17,045) (4,557) Change in working capital Decrease(+)/increase(-) in other receivables 8,291 14,707 Decrease (+)/increase (-) in inventories (8,702) (27,825) Decrease(-)/increase(+) in trade and other payables (4,305) (12,558) Change in working capital (4,716) (25,676) (21,761) (30,233) Interest and other finance cost paid (310) (841) Interest and other finance income 213 225 Net cash generated (used) in operating activities (21,858) (30,849) Cash flows from investing activities Investments in associates (486) - Purchases of property, plant and equipment (17,085) (14,571) Purchases of biological assets (52) - Purchases of intangible assets (176) (93) Proceeds from sale of property, plant and equipment - 18 Proceeds from sale of biological assets 92 - Purchases of available-for-sale financial assets (3,571) Net cash generated (used) in investing activities (17,707) (18,217) Cash flows from financing activities Proceeds from share issue net of transactions costs 54,035 81,177 Realised stock options - 301 Proceeds from interest-bearing liabilities - 20,000 Proceeds from advance payments 19,480 1,787 Payment of interest-bearing liabilities (1,317) (8,269) Net cash generated (used) in financing activities 72,198 94,996 Net increase (decrease) in cash and cash equivalents 32,633 45,930 Cash and cash equivalents at beginning of the period 36,058 40,019 Cash and cash equivalents at end of the period 68,691 85,949 NOTES 1. Basis of preparation This interim report has been prepared in compliance with IAS 34. The interim financial information set out herein has been prepared on the same basis and using the same accounting policies as were applied in drawing up the Group's statutory financial statements for the year ended 31 December 2012. 2. Property, plant and equipment Machinery Construction Land Other and in and tangible (all amounts in EUR '000) equipment progress buildings assets Total Gross carrying amount at 1 Jan 13 376,741 114,378 281,209 229,479 1,001,807 Additions 82 16,995 8 - 17,085 Transfers 8,148 (12,699) 695 3,856 - Gross carrying amount at 31 Mar 13 384,971 118,674 281,912 233,335 1,018,892 Accumulated depreciation and impairment losses at 1 Jan 13 96,677 - 44,918 50,760 192,355 Depreciation for the period 7,666 - 3,151 2,116 12,933 Accumulated depreciation and impairment losses at 31 Mar 13 104,343 - 48,069 52,876 205,288 Carrying amount at 1 Jan 13 280,064 114,378 236,291 178,719 809,452 Carrying amount at 31 Mar 13 280,628 118,674 233,843 180,459 813,604 3. Trade receivables (all amounts in EUR '000) 31 Mar 13 31 Dec 12 Nickel-Cobalt sulphide 16,459 25,254 Zinc sulphide 5,941 6,912 Copper sulphide - 8 Total trade receivables 22,400 32,174 4. Inventories (all amounts in EUR '000) 31 Mar 13 31 Dec 12 Raw materials and consumables 22,491 21,077 Work in progress 280,148 272,775 Finished products 3,824 3,909 Total inventories 306,463 297,761 5. Borrowings (all amounts in EUR '000) Non-current 31 Mar 13 31 Dec 12 Capital loans 1,405 1,405 Investment and Working Capital loan 51,642 51,600 Senior Unsecured Bonds due 2017 108,745 108,683 Revolving Credit Facility 69,539 69,451 Senior Unsecured Convertible Bonds due 2015 228,157 225,875 Finance lease liabilities 28,608 30,748 Other 16,948 18,266 505,044 506,028 Current Investment and Working Capital loan 6,430 6,430 Senior Unsecured Convertible Bonds due 2013 76,503 75,805 Finance lease liabilities 10,777 11,558 93,710 93,793 Total borrowings 598,754 599,821 6. Advance payments (all amounts in EUR '000) Non-current 31 Mar 13 31 Dec 12 Deferred zinc sales revenue 218,953 219,385 Deferred uranium sales revenue 53,928 46,462 272,881 265,847 Current Deferred zinc sales revenue 19,014 7,790 Other 13 67 19,027 7,857 Total advance payments 291,908 273,704 7. Provisions Gypsum Water pond balance Environmental Mining leakage management restoration fee Total 31 Dec 12 12,156 9,082 6,136 154 27,528 Charged/(credited) to the income statement: Additional provisions - - 88 9 97 Unwinding of discount - - 8 - 8 Used during the period (3,535) (2,324) - - (5,859) 31 Mar 13 8,621 6,758 6,232 163 21,774 The non-current and current portions of provisions are as follows: 31 Mar 13 31 Dec 12 Non-current Gypsum pond leakage 5,000 5,000 Environmental restoration 6,232 6,136 Mining fee 163 154 11,395 11,290 Current Gypsum pond leakage 3,621 7,156 Water balance management 6,758 9,082 10,379 16,238 Total 21,774 27,528 8. Changes in the number of shares issued Number of shares 31 Dec 12 272,309,640 Changes - 31 Mar 13 272,309,640 9. Contingencies and commitments (all amounts in EUR '000) The future aggregate minimum lease payments under non cancellable operating leases 31 Mar 13 31 Dec 12 Not later than 1 year 1,825 1,910 Later than 1 year and not later than 5 years 882 1,036 Later than 5 years 47 47 2,754 2,993 Capital commitments At 31 March 2013, the Group had capital commitments amounting to EUR 13.1 million (31 December 2012: EUR 15.1 million) principally relating to the completion of the Talvivaara mine, improving the reliability and expansion of production capacity. These commitments are for the acquisition of new property, plant and equipment. Key financial figures of the Group Three Three Twelve months to months to months to 31 Mar 13 31 Mar 12 31 Dec 12 Net sales EUR '000 27,605 39,027 142,948 Operating profit (loss) EUR '000 (19,988) (11,431) (83,588) Operating profit (loss) percentage -72.4 % -29.3 % -58.5 % Profit (loss) before tax EUR '000 (31,729) (19,360) (129,292) Profit (loss) for the period EUR '000 (23,932) (14,909) (103,911) Return on equity -7.5 % -4.2 % -33.0 % Equity-to-assets ratio 25.5 % 31.8 % 24.3 % Net interest-bearing debt EUR '000 530,063 422,235 563,763 Debt-to-equity ratio 159.1 % 107.9 % 183.8 % Return on investment -1.3 % -0.6 % -6.7 % Capital expenditure EUR '000 17,313 14,664 97,451 Property, plant and equipment EUR '000 813,604 765,652 809,452 Borrowings EUR '000 598,754 508,184 599,821 Cash and cash equivalents at the end of the period EUR '000 68,691 85,949 36,058 Share-related key figures Three Three Twelve months to months to months to 31 Mar 13 31 Mar 12 31 Dec 12 Earnings per share EUR (0.09) (0.06) (0.38) Equity per share^1 EUR 1.00 1.51 1.11 Development of share price at London Stock Exchange Average trading price^2 EUR 0.53 3.53 2.50 GBP 0.45 2.94 2.02 Lowest trading price^2 EUR 0.21 2.82 1.03 GBP 0.18 2.35 0.83 Highest trading price^2 EUR 1.33 4.30 4.43 GBP 1.14 3.59 3.59 Trading price at the end of the period^3 EUR 0.25 2.89 1.25 GBP 0.21 2.41 1.02 Change during the period -79.7 % 20.4 % -48.8 % Price-earnings ratio neg. neg. neg. Market capitalization at the end of the period^4 EUR '000 66,821 781,369 341,597 GBP '000 56,504 651,584 278,777 Development in trading volume Trading volume 1000 shares 42,435 37,271 103,218 In relation to weighted average number of shares 15.6 % 14.9 % 38.7 % Development of share price at OMX Helsinki Average trading price EUR 0.63 3.51 2.31 Lowest trading price EUR 0.22 2.64 1.08 Highest trading price EUR 1.39 4.35 4.35 Trading price at the end of the period EUR 0.23 2.91 1.24 Change during the period -81.7 % 16.7 % -50.2 % Price-earnings ratio neg. neg. neg. Market capitalization at the end of the period EUR '000 61,814 786,880 338,209 Development in trading volume Trading volume 1000 shares 113,082 68,673 209,565 In relation to weighted average number of shares 41.5 % 27.5 % 78.5 % Adjusted average number of shares 272,309,640 249,665,643 266,846,084 Fully diluted average number of shares 271,205,640 249,665,643 265,742,084 Number of shares at the end of the period 272,309,640 270,591,300 272,309,640 ^1) The funds entered into share issue reserve are not included in the calculation. ^2) Trading price is calculated on the average of EUR/GBP exchange rates published by the European Central Bank during the period. ^3) Trading price is calculated on the EUR/GBP exchange rate published by the European Central Bank at the end of the period. ^4) Market capitalization is calculated on the EUR/GBP exchange rate published by the European Central Bank at the end of the period. Employee-related key figures Three Three Twelve months to months to months to 31 Mar 13 31 Mar 12 31 Dec 12 Wages and salaries EUR '000 6,031 6,581 23,080 Average number of employees 586 483 547 Number of employees at the end of the period 583 498 588 Other figures Three Three Twelve months to months to months to 31 Mar 13 31 Mar 12 31 Dec 12 Share options outstanding at the end of the period 3,674,500 4,665,064 5,958,837 Number of shares to be issued against the outstanding share options 3,674,500 4,665,064 5,958,837 Rights to vote of shares to be issued against the outstanding share options 1.3 % 1.7 % 2.1 % Talvivaara Mining Company Plc Key financial figures of the Group Return on equity Profit (loss) for the period (Total equity at the beginning of period + Total equity at the end of period)/2 Equity-to-assets ratio Total equity Total assets Net interest-bearing debt Interest-bearing debt - Cash and cash equivalent Debt-to-equity ratio Net interest-bearing debt Total equity Return on investment Profit (loss) for the period + Finance cost (Total equity at the beginning of period + Total equity at the end of period)/2 + (Borrowings at the beginning of period + Borrowings at the end of period)/2 Share-related key figures Profit (loss) attributable to equity holders of the Earnings per share Company Adjusted average number of shares Equity per share Equity attributable to equity holders of the Company Adjusted average number of shares Talvivaara Interim Report Jan-Mar 2013 24.4.2013 ------------------------------------------------------------------------------ This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Talvivaaran Kaivososakeyhtiö Oyj via Thomson Reuters ONE HUG#1695638
Talvivaaran Kaivososakeyhtiö Oyj : Talvivaara Mining Company Interim Report for January-March 2013
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