Stock Exchange Release
Talvivaara Mining Company Plc
28 November 2014
Talvivaara Mining Company report on operational and financial status and
development for the period of January-November 2014
Operating subsidiary Talvivaara Sotkamo filed for bankruptcy
Key events
* Talvivaara Mining Company Plc's ("Talvivaara" or the "Company") operating
subsidiary Talvivaara Sotkamo Ltd ("Talvivaara Sotkamo") filed for
bankruptcy on 6 November 2014
* Due to the bankruptcy the Company has lost control over Talvivaara Sotkamo,
and the Talvivaara Group has dissolved as regards consolidation of the
operating subsidiary into the Group accounts
* Talvivaara continues its operations for the time being with the target of
securing sufficient financing to participate, as a member of a consortium,
in the acquisition of the mining operations from the bankruptcy estate of
Talvivaara Sotkamo
* Talvivaara finances its operations by providing administrative and technical
services and the lease of critical machinery and equipment to the bankruptcy
estate of Talvivaara Sotkamo under agreements entered into by the Company
and the bankruptcy estate on 19 November 2014; similar arrangements were
previously in place between the Company and Talvivaara Sotkamo
* Talvivaara's draft restructuring programme was submitted to the District
Court of Espoo on
30 September 2014 and is being supplemented for re-submission; the Espoo
District Court has today extended the deadline for the re-submission until
30 January 2015
Review of operations
Following the bankruptcy of Talvivaara Sotkamo on 6 November 2014, the Company
no longer has control over the operations at the Talvivaara mine and is
therefore not in a position to continue reporting on the status and development
of the Sotkamo operations, including information on production levels and water
management.
Prior to the bankruptcy, Talvivaara Group's activities comprised the operations
at the Talvivaara mine primarily carried out by Talvivaara Sotkamo and a broad
range of support functions and expert services provided by the Company.
Throughout its existence, the Company has employed the majority of the Group's
managerial resources and technical experts and therefore provided the operating
subsidiary with e.g. administrative, financial, communications, technical,
laboratory, commercial, legal and sustainability services for agreed fees. In
addition, the Company owns a lime and limestone handling plant and reception
station, which are critical for the production and water treatment processes of
the mine, and which it has leased to Talvivaara Sotkamo since 2009.
In order to minimise any environmental risks, assist the running of the ongoing
operations and to facilitate the sales process of the mining assets, Talvivaara
and the bankruptcy estate of Talvivaara Sotkamo have agreed that the services
and equipment leases provided by the Company shall continue. To this effect, the
parties entered into an Administration and Laboratory Services Agreement and an
Agreement of Lease of Lime and Limestone Handling Plant and Reception Station on
19 November 2014. The agreements detail the Company's personnel resources and
equipment that are available and critical for the environmentally and
occupationally safe operations at the Talvivaara mine and state the agreed
pricing for the services provided. Invoicing of personnel resources is based on
hourly rates, expenses incurred in the provision of the services are charged at
cost added with an administrative margin, and for the limestone plant a monthly
rent has been agreed. The new agreements are largely in line with those
previously in place between Talvivaara and Talvivaara Sotkamo with only minor
modifications resulting from the changed circumstances following Talvivaara
Sotkamo's bankruptcy.
Financial status and going concern
Liquidity development
As at 31 December 2013, the Talvivaara Group had cash and cash equivalents
amounting to EUR 5.9 million. With the existing cash, income generated from
nickel and cobalt sales to Norilsk Nickel Harjavalta Oy and the loan drawn down
from Nyrstar Sales and Marketing AG ("Nyrstar") upon zinc deliveries, the Group
was able to continue operations until 6 November 2014. On that date, following
intensive financing discussions with key stakeholders, potential new investors
and the Republic of Finland, Talvivaara was informed that short term financing
to meet Talvivaara Sotkamo's immediate working capital needs was not available
in the required time frame. As a result, the Board of Directors of Talvivaara
Sotkamo decided to file Talvivaara Sotkamo for bankruptcy. The filing was done
jointly with the Administrator of Talvivaara Sotkamo's corporate reorganisation
proceedings and later the same day approved by the District Court of Espoo.
The listed parent company Talvivaara continues its operations for the time being
with the target of securing sufficient third party financing to participate, as
a member of a consortium, in the acquisition of the mining operations from the
bankruptcy estate of Talvivaara Sotkamo. While such financing negotiations
continue, the Company finances its day-to-day operations by providing
administrative and technical services and the lease of critical machinery and
equipment to the bankruptcy estate of Talvivaara Sotkamo.
Subsequent to Talvivaara Sotkamo's bankruptcy, the Company has declared EUR
31.5 million, including EUR 5.6 million in value added tax ("VAT"), of its sales
receivables from Talvivaara Sotkamo as credit losses and accordingly claimed and
received a refund of the associated VAT.
As at 28 November 2014, the Company's cash and cash equivalents amount to EUR
5.5 million.
Equity
Following Talvivaara Sotkamo's bankruptcy, the Company has fully written off its
receivables from and the shares held in Talvivaara Sotkamo. As a result,
Talvivaara has lost its equity, which has been acknowledged by the Company's
Board and notified to the trade register. Talvivaara further notes that it has
already in November 2013 recognised the weakening of its financial position and
taken measures to mitigate this by applying for corporate reorganisation. The
corporate reorganisation proceedings of the Company were commenced on 29
November 2013 and their continuation was approved by the Company's shareholders
on 12 June 2014.
Off-balance sheet and contingent liabilities
Talvivaara Sotkamo has drawn down EUR 12.8 million, including interest through
October 2014, in loans from Nyrstar under the Loan and Streaming Holiday
Agreement of 1 April 2014 between Talvivaara, Talvivaara Sotkamo and Nyrstar.
Upon the bankruptcy of Talvivaara Sotkamo, which constitutes an event of
default, Nyrstar is entitled to declare that all or part of the loans, together
with accrued interest, be payable on demand. Should Nyrstar demand full or
partial payment of the loans, the Company as the guarantor would be liable for
such payment.
Under the Loan and Streaming Holiday Agreement the Company has also undertaken
to guarantee the termination sum stated in the Zinc Streaming Agreement of 2010
between Talvivaara Sotkamo and Nyrstar. The termination sum is calculated with
reference to the remaining delivery commitment for zinc under the Zinc Streaming
Agreement, and as at 6 November 2014 amounted to EUR 206 million. The liability
of the guarantor in respect of the termination sum will fall due and payable on
the date falling 12 months after the date on which Talvivaara Sotkamo was placed
in bankruptcy, in order to provide the guarantor with sufficient time to try to
continue the business of Talvivaara Sotkamo. If the guarantor is successful in
re-gaining control of the Talvivaara Sotkamo operations within the given time,
it may take over the Zinc Streaming Agreement, in which case the termination sum
will not fall due. In the event the guarantor is placed in bankruptcy, the
liability of the guarantor in respect of the termination sum terminates with
immediate effect.
The Company has given a guarantee for a EUR 50 million investment and working
capital loan drawn from Finnvera by Talvivaara Sotkamo in 2009. In addition, the
Company has given a floating charge security for the loans drawn from Finnvera
by Talvivaara Sotkamo. The guaranteed liability is part of the Company's
restructuring debt and any payments that fall due under the guarantee are
finally determined in the Company's restructuring programme and re-paid
according to the authorized payment schedule.
Talvivaara Sotkamo has largely covered the environmental bond requirement under
the current environmental permit by a guarantee insurance provided by Atradius
Credit Insurance NV ("Atradius"). The coverage currently amounts to EUR 31.9
million. According to the environmental permit, the required bond is to be
placed to cover the cost of the restoration of waste areas (gypsum ponds, heap
areas), which is anticipated to take place partly during the life of the mine,
as waste areas are filled to their maximum levels, and partly as part of the
eventual closure of the mine. In the event such restoration activities took
place without Talvivaara Sotkamo carrying the cost, the expenses would initially
be covered by Atradius. However, eventually Atradius would claim the cost back
from Talvivaara, which has given counter-indemnity for such costs to Atradius.
The continuance of the guarantee insurance is under discussion with the
bankruptcy estate of Talvivaara Sotkamo.
Going Concern
In view of the Company's current cash position and the income anticipated from
the service and lease agreements now in place between Talvivaara and Talvivaara
Sotkamo's bankruptcy estate, the Company anticipates having sufficient liquidity
to continue its currently foreseen day-to-day operations as a going concern for
the foreseeable future. The Directors, Management and the Administrator do not
contemplate the liquidation of Talvivaara and continue their efforts aimed at
securing sufficient financing for the Company to participate, as a member of a
consortium, in the acquisition of the mining operations from the bankruptcy
estate of Talvivaara Sotkamo. However, there is substantial uncertainty relating
to the Company's ability to access sufficient funds for the contemplated
transaction. Furthermore, even if the Company were successful in re-gaining
partial ownership of the assets, there is no certainty that the arrangement
would be such that it would provide sufficient liquidity for the Company to
successfully complete its contemplated restructuring programme in the long term.
In the event that Talvivaara cannot re-gain any ownership of the mining assets,
its continuation on a going concern basis is unlikely to be feasible.
Talvivaara Sotkamo's bankruptcy constitutes an event of default under the Loan
and Streaming Holiday Agreement with Nyrstar of 1 April 2014. This entitles
Nyrstar to demand immediate partial or full payment of the EUR 12.8 million
loans drawn by Talvivaara Sotkamo and guaranteed by the Company under the
agreement. Should Nyrstar present such a demand, the Company may not have
sufficient cash reserves or access to additional liquidity to make the required
payment and may therefore not be able to continue its operations as a going
concern.
Progress of corporate reorganisation
The corporate reorganisation proceedings of Talvivaara were commenced on 29
November 2013. The Administrator has subsequently on 30 September 2014 submitted
a preliminary restructuring programme proposal for the Company to the Espoo
District Court.
The Administrator has recorded the Company's reorganisation debt at EUR 482
million in the restructuring programme proposal, including the EUR 50 million
guarantee for Talvivaara Sotkamo's loans from Finnvera. According to the
Administrator, the amount of reorganisation debt will not materially change in
the forthcoming re-submission of the programme proposal.
The reorganisation debts will be restructured according to the restructuring
programme eventually authorised by the Espoo District Court. In the preliminary
programme proposal the Administrator has suggested a 97 per cent haircut to all
unsecured debts of the Company and an eight year payment schedule. The
Administrator has also stated that he is evaluating the possibility of allowing
conversion of the reorganisation debt into the Company's equity.
The Espoo District Court has today granted an extension to the deadline for the
re-submission of the restructuring programme proposal until 30 January 2015.
Financing and commercial arrangements
Loan and Streaming Holiday Agreement with Nyrstar
Talvivaara entered, together with Talvivaara Sotkamo, into a Loan and Streaming
Holiday Agreement with Nyrstar on 1 April 2014. Whilst Talvivaara is not in
control of the actions of the Talvivaara Sotkamo bankruptcy estate towards the
agreement, the Company remains liable for the EUR 12.8 million loans drawn by
Talvivaara Sotkamo under the agreement as well as the termination sum under the
Zinc Streaming Agreement of 2010, which currently amounts to approximately EUR
206 million, as the guarantor (see also "Off-balance sheet and contingent
liabilities" and "Going Concern" above).
Participation in Fennovoima nuclear power project
Talvivaara announced on 21 February 2014 its support for the Fennovoima nuclear
power project, but noted that in the prevailing circumstances the Company
focused all its financial resources on the Sotkamo operations and the corporate
reorganisation proceedings. Therefore Talvivaara made no commitment to any
additional funding of the Fennovoima project. At present, the Company is not in
a position to make any reassessment of its stance towards the project.
Risk factors
Talvivaara's near term risk factors include particularly such risks that relate
to the ongoing corporate reorganisation proceedings, financing and going
concern:
If an adequate overall financial solution for the contemplated participation by
Talvivaara in the acquisition of the mining operations from the Talvivaara
Sotkamo bankruptcy estate is not found, Talvivaara's restructuring programme may
not be approved and authorised and shareholders could lose their entire
investment in the Company
The approval and authorisation of the proposed restructuring programme of
Talvivaara is conditional, among other things, on an adequate financing solution
to allow the Company's participation in the acquisition of the mining operations
from the Talvivaara Sotkamo bankruptcy estate and to cover the requirements of
the restructuring programme in longer term. If such financial solution is not
found, the restructuring programmes may not be approved and authorised, the
Company may have to file for bankruptcy and the shareholders could lose their
entire investment in the Company.
If the corporate reorganisation proceedings of Talvivaara are not successful,
shareholders could lose their entire investment in the Company
Although the Board believes that a corporate reorganisation is a viable option
for Talvivaara, there can be no assurance that the proposed restructuring
programme of the Company will be approved and authorised or be ultimately
successful. The corporate reorganisation process can fail for a number of
reasons, including due to an insufficiency of funds to implement or complete the
restructuring programme, changes in circumstances affecting the financial
viability of Talvivaara, including e.g. termination of the service and lease
agreements between the Company and the bankruptcy estate of Talvivaara Sotkamo,
or failure to regain any holding in the Sotkamo mining asset and/or insufficient
income from the services provided to the bankruptcy estate or the contemplated
new entity running the mining operations. If the corporate reorganisation fails
for these or any other reasons, it could result in the bankruptcy of the
Company. As a result, shareholders could lose their entire investment in the
Company.
If Talvivaara is not able to continue as a going concern, it may be unable to
realise its assets and discharge its liabilities in the normal course of
business, which could lead to shareholders losing their entire investment in the
Company
Risks related to going concern are further described in the Going Concern
section of this announcement.
Legal affairs and governance
Composition of Talvivaara's Shareholders' Nomination Panel
The Shareholders' Nomination Panel was established in 2013 by the Annual General
Meeting. Its duty is to prepare proposals for the election and remuneration of
the members of the Board of Directors to the General Meeting. Following the
annual organizational meeting of the Panel held on 26 November 2014 the
composition of the Nomination Panel is the following:
* Kari Järvinen, CEO, nominated by Solidium Oy
* Joni Hautojärvi, managing director of Norilsk Nickel Harjavalta Oy,
nominated by Norilsk Nickel Holdings (Cyprus) Ltd
* Pekka Perä, CEO of Talvivaara, as a shareholder of the Company
* Olli Salo, nominated by Seppo Aho, a shareholder of the Company
* Tapani Järvinen, Chairman of the Board of Directors of the Company
* Graham Titcombe, deputy Chairman of the Board of Directors of the Company
Consideration of charges relating to the gypsum pond leakages and discharges
into water ways
The consideration of charges, which related to Talvivaara Sotkamo's gypsum pond
leakages and the sodium, sulphate and manganese discharges that exceeded the
anticipated amounts stated in the original environmental permit application of
the mine, was completed on 22 September 2014.
The prosecutor decided to bring charges against four members of Talvivaara's
management, including CEO Pekka Perä and former CEO Harri Natunen. The charges
concern aggravated impairment of the environment.
The Company does not share the prosecutor's view of the threshold for charges
having been met. The Company welcomes, however, the opportunity to have the
facts relating to the matter as well as the then-current operating conditions of
the Company discussed in an open court.
Personnel
Talvivaara's headcount decreased from 61 at the end of 2013 to 54 on the day of
this announcement.
Talvivaara's personnel comprises an expert organisation, the core competences of
which include e.g. high quality analytical laboratory services, the
bioheapleaching and other production processes, procurement, environmental
safety, risk management and communications. The organisation has in the past
provided critical services to Talvivaara Sotkamo and it continues to provide the
same services to the bankruptcy estate of Talvivaara Sotkamo as agreed between
the Company and the bankruptcy estate.
Changes in Talvivaara Management
Talvivaara announced on 30 October 2014 that Saila Miettinen-Lähde who has been
CFO of the Company since 2005 and Deputy CEO since 2012 had decided to leave the
Company during the spring of 2015. She continues as head of the Company's
finance function until her departure.
In preparation for her departure the Company appointed Chief Commercial Officer
Pekka Erkinheimo Deputy CEO with immediate effect.
Market environment
Following the bankruptcy of Talvivaara Sotkamo and its exit from the Talvivaara
Group, the Company has no exposure to nickel and other commodities markets or to
foreign exchange rates. Talvivaara's income is for the time being based on the
service and lease agreements between the Company and the bankruptcy estate of
Talvivaara Sotkamo as described elsewhere in this announcement.
Short-term outlook
Talvivaara continues, together with the Administrator, negotiations targeted at
finding a solution whereby the Company could secure participation in a
consortium that would acquire the Sotkamo mining operations from the Talvivaara
Sotkamo bankruptcy estate. Financing for Talvivaara's potential participation in
such an arrangement could come e.g. through a share and/or a bond issue
involving amongst others current shareholders and bondholders. The Company can
give no assurance of the success to completion of the ongoing negotiations or of
the possible launch of any financing transactions related to such contemplated
arrangements.
Trading in the Talvivaara share at the Helsinki stock exchange has been
suspended since 6 November 2014. As stated by the Finnish Financial Supervisory
Authority in its exemption decision relating to Talvivaara's January-September
2014 interim report, reliable pricing of the share, which is a pre-requisite for
the trading to resume, cannot occur until the uncertainties relating to
Talvivaara's ability to continue its operations have been solved and sufficient
information on going concern and the Company's financial status has been
announced. In Talvivaara's view, these conditions can only be met upon the
Company having gained sufficient knowledge of its ability to regain partial
holding in the Sotkamo mining asset.
28 November 2014
Talvivaara Mining Company Plc
Board of Directors
Enquiries:
Talvivaara Mining Company Plc Tel. +358 20 712 9800
Pekka Perä, CEO
Pekka Erkinheimo, Deputy CEO
Saila Miettinen-Lähde, CFO
[HUG#1875063]
Talvivaara Mining Company report on operational and financial status and development for period of Jan-Nov 2014
| Source: Talvivaaran Kaivososakeyhtiö Oyj
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