THIS DOCUMENT AND THE ENCLOSED FORM OF PROXY AND REGISTRATION FORM ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. It contains the Resolutions to be voted on at an Extraordinary General Meeting of Talvivaara Mining Company Plc (the “Company”) to be held on 8 March 2013. If you are in any doubt about the contents of this document or the action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if you are not, from another appropriately authorised independent financial adviser.
If you sell or transfer or have sold or otherwise transferred all of your Shares, please send this document, together with the accompanying Form of Proxy and Registration Form, as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee, except that such documents should not be sent in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to, the United States and any of the Excluded Territories. If you sell or transfer or have sold or otherwise transferred part of your holding of Shares, you should consult with the stockbroker, bank or other agent through whom the sale or transfer was effected.
The distribution of this document and/or its accompanying documents into jurisdictions other than Finland and the United Kingdom may be restricted by law and, therefore, persons into whose possession this document and/or the accompanying Form of Proxy and Registration Form comes should inform themselves about and observe such restrictions. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, subject to certain exceptions, this document and any related document should not be distributed, forwarded to, or transmitted in or into the United States, or any of the Excluded Territories.
This document should be read as a whole. However, your attention is drawn to the letter from the Chairman of the Company which is set out in Part I (Letter from the Chairman of Talvivaara Mining Company Plc) of this document and which recommends that you vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting referred to below. For a discussion of certain risk factors which should be taken into account when considering whether to vote in favour of the Resolutions, see Part II (Risk Factors) of this document.
See Part I (Letter from the Chairman of Talvivaara Mining Company Plc) for more detailed information on actions that should be taken by CDI Shareholders in order to attend and vote at the Extraordinary General Meeting.
_______________________________________________________________________________________
TALVIVAARA MINING COMPANY PLC
(Incorporated and registered in the Republic of Finland with business identity code 1847894-2)
Proposed Rights Issue authorisation of up to 26,000,000,000 New Shares and
Authorisation to the Board to decide to issue up to 600,000,000 new Shares in connection with an adjustment to the terms of the Convertible Bonds due 2013
and
Circular and Notice of Extraordinary General Meeting
_______________________________________________________________________________________ The Notice of the Extraordinary General Meeting to be held at 10:00 a.m. (GMT+2) on 8 March 2013 at Finlandia Hall, Mannerheimintie 13 e, FI-00100 Helsinki, Finland, is set out at the end of this document. Qualifying CDI Shareholders will find enclosed with this document a Form of Proxy and Registration Form for use at the Extraordinary General Meeting. Qualifying non-CDI Shareholders should follow the instructions included in the Notice of the Extraordinary General Meeting on actions that should be taken in order to attend and vote at the Extraordinary General Meeting.
This document does not constitute a prospectus or a prospectus equivalent document. Nothing in this document should be interpreted as an offer of securities or a term or condition of the Proposed Rights Issue. The Prospectus containing details of the Proposed Rights Issue is not expected to be posted to Shareholders but, subject to the approval by the FFSA, is expected to be published on Talvivaara’s website at www.talvivaara.com on or around 13 March 2013 following the requisite Resolutions being passed. Investors should read the Prospectus for information about the Proposed Rights Issue before deciding whether or not to invest in the Subscription Rights or the New Shares referred to in this document. Investors should not subscribe for or acquire any Subscription Rights or New Shares except on the basis of the information, and the terms and conditions of the Proposed Rights Issue, to be contained in the Prospectus. This document cannot be relied on for any investment contract or decision.
In making an investment decision, each investor must rely on their own examination, analysis and enquiry of the Company and the terms of Proposed Rights Issue, including the merits and risks involved.
None of the Company, J.P. Morgan Cazenove or any of the other Managers, or any of their respective representatives, is making any representation to any offeree, subscriber or purchaser of the Subscription Rights or the New Shares regarding the legality of an investment in such Subscription Rights or New Shares by such offeree, subscriber or purchaser under the laws applicable to such offeree, subscriber or purchaser. Each investor shall consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Subscription Rights or the New Shares.
This document does not constitute or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security. There will be no such offer, invitation or solicitation in any jurisdiction in which such an offer, an invitation or a solicitation is unlawful. The securities referred to herein which may be offered pursuant to the Proposed Rights Issue have not been, and will not be, registered under the Securities Act, or under any securities laws of any state or other jurisdiction of the United States, or under any securities laws of any Excluded Territory, and may not be offered, sold, taken up, exercised, pledged, resold or renounced, or otherwise transferred, delivered or distributed, directly or indirectly, within the United States, except pursuant to an applicable exemption from or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, taken up, exercised, pledged, resold or renounced, or otherwise transferred, delivered or distributed, directly or
indirectly, within any Excluded Territory, except pursuant to an exemption from, and in compliance with (or in a transaction not subject to), any applicable securities laws. There will be no public offer in the United States or in any Excluded Territory.
J.P. Morgan Cazenove, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as sole sponsor for Talvivaara and no one else in connection with the Proposed Rights Issue and the Resolutions and will not regard any other person (whether or not a recipient of this document) as a client in relation to either the Proposed Rights Issue or the Resolutions and will not be responsible to anyone other than Talvivaara for providing the protections afforded to its clients nor for giving advice in connection with either the Proposed Rights Issue, the Resolutions or any other transaction, arrangement or matter referred to in this document.
The Managers are acting exclusively for Talvivaara and no one else in connection with the Proposed Rights Issue. They will not regard any other person (whether or not a recipient of this document) as their respective clients in relation to the Proposed Rights Issue, the Adjustment or the Resolutions and will not be responsible to anyone other than Talvivaara for providing the protections afforded to their respective clients nor for giving advice in connection with the Proposed Rights Issue, the Adjustment, the Resolutions or any other transaction or arrangement referred to herein.
Apart from the responsibilities and liabilities, if any, which may be imposed on J.P. Morgan Cazenove and any of the other Managers by the Financial Services and Markets Act 2000 or any other applicable laws, neither J.P. Morgan Cazenove nor any of the other Managers accept any responsibility whatsoever for the contents of this document, and no representation or warranty, express or implied, is made by J.P. Morgan Cazenove or any other Manager in relation to the contents of this document, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with J.P. Morgan Cazenove, the other Managers, the Proposed Rights Issue or the Resolutions. To the fullest extent permitted by law, J.P. Morgan Cazenove and the other Managers accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this document or any such statement.
Except as otherwise indicated, capitalised terms have the meaning ascribed to them in Part VI (Definitions). A glossary of certain technical terms is included in Part V (Glossary of Technical Terms).
TABLE OF CONTENTS
Page
EXPECTED TIMETABLE OF PRINCIPAL EVENTS ... 1
DIRECTORS AND ADVISERS ... 2
PART I LETTER FROM THE CHAIRMAN OF TALVIVAARA MINING COMPANY PLC ... 3
PART II RISK FACTORS ... 23
PART III SOME QUESTIONS AND ANSWERS ON THE PROPOSED RIGHTS ISSUE ... 25
PART IV ADDITIONAL INFORMATION ... 30
PART V GLOSSARY OF TECHNICAL TERMS ... 38
PART VI DEFINITIONS ... 40
NOTICE OF EXTRAORDINARY GENERAL MEETING... 44
REGISTRATION FORM... 47
FORM OF PROXY ... 49 * * *
Where to Find Help
Part III (Some Questions and Answers on the Proposed Rights Issue) of this document answers some of the questions Shareholders may have about this document and about the Proposed Rights Issue.
Financial Information
Talvivaara has published its audited consolidated financial statements as at and for the year ended 31 December 2012 on its website, www.talvivaara.com, on the date of this document.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Each of the times and dates in the table below is indicative only and may be adjusted by the Company in consultation with its advisers.
Announcement of Talvivaara’s results of operations for the year ended 31 December 2012 .. 14 February 2013 Publication of this document and the Form of Proxy and Registration Form ... 14 February 2013 Latest time and date for receipt of Forms of Proxy and Registration Forms ... 4:00 p.m. on 26 February 2013 Extraordinary General Meeting ... 10:00 a.m. (GMT+2) on 8 March 2013 Announcement of the terms of the Proposed Rights Issue ... 8 March 2013 Publication of the Prospectus by the Company ... 13 March 2013 Notes:
(i) All references in this document to time are to London time (GMT) unless otherwise stated.
(ii) Further details of the timetable for the Proposed Rights Issue will be set out in the Prospectus expected to be published, subject to the approval of the FFSA, on or around 13 March 2013.
DIRECTORS AND ADVISERS
Directors Tapani Järvinen (Chairman of the Board)
Pekka Perä (Chief Executive Officer and Executive Director)
Graham Titcombe (Non-Executive Director)
Edward Haslam (Non-Executive Director)
Eileen Carr (Non-Executive Director)
Stuart Murray (Non-Executive Director) Michael Rawlinson (Non-Executive Director) Kirsi Sormunen (Non-Executive Director)
Registered Office Ahventie 4 B 47
FI-02170 Espoo
Finland
Sponsor J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
United Kingdom
Legal Advisers to the Company White & Case LLP
Eteläranta 14 5 Old Broad Street FI-00130 Helsinki London EC2N 1DV
Finland United Kingdom
Legal Advisers to the Sponsor Latham & Watkins (London) LLP
99 Bishopsgate
London EC2M 3XF
United Kingdom
Registrars Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St. Helier
Jersey, JE1 1ES
Auditor PricewaterhouseCoopers Oy
Itämerentori 2
FI-00180 Helsinki
Finland
Financial PR College Hill Ltd. | International business communications consultancy
The Registry, Royal Mint Court
London EC3N 4QN
PART I
LETTER FROM THE CHAIRMAN OF TALVIVAARA MINING COMPANY PLC
TALVIVAARA MINING COMPANY PLC
(Incorporated and registered in the Republic of Finland with business identity code 1847894-2)
Directors: Registered Office:
Tapani Järvinen (Chairman of the Board) Ahventie 4 B 47
Pekka Perä (Chief Executive Officer and Executive Director) FI-02170 Espoo
Graham Titcombe (Non-Executive Director) Finland
Edward Haslam (Non-Executive Director) Eileen Carr (Non-Executive Director) Stuart Murray (Non-Executive Director) Michael Rawlinson (Non-Executive Director) Kirsi Sormunen (Non-Executive Director)
14 February 2013 To Shareholders and, for information only, to the holders of Options and Convertible Bonds
Dear Shareholder,
Proposed Rights Issue authorisation of up to 26,000,000,000 New Shares and
Authorisation to the Board to decide to issue up to 600,000,000 new Shares in connection with an adjustment to the terms of the Convertible Bonds due 2013
and
Notice of Extraordinary General Meeting 1. Introduction
Talvivaara has faced a number of operational challenges during the ramp-up of its operations since it commenced production of saleable products in February 2009. These challenges have resulted in Talvivaara not achieving its original production targets for 2010, 2011 and 2012. Initially, the output of Talvivaara’s crushing circuit did not meet targeted levels and required significant modifications and additional capacity. The crushing issues restricted the production of new ore, thereby delaying the ramp-up of production, and slow heap build-up also impacted bioheapleaching performance as metals back-precipitated in the oldest section of the heap. In 2010 and 2011, Talvivaara faced further operational bottlenecks with the poor performance of primary heap reclaiming equipment and the restricted availability of the metals recovery plant. Following the steps taken to de-bottleneck operations and the promising results seen in metals production in the fourth quarter of 2011, Talvivaara set its original production target for 2012 of between 25,000 and 30,000 tonnes of nickel.
However, over the course of 2012, Talvivaara faced increasing challenges with the water balance of the mine, as rapid snow melting in the spring and historically heavy rainfall in the spring and summer materially increased the amount of excess water that had been accumulating at the mine site. The challenging water balance led to Talvivaara temporarily suspending the production of new ore as of September 2012, diluted metal grades in leach solution and impacted the efficiency of aeration, leading to reduced metals production and culminated in a leakage of the gypsum pond in November 2012. These issues have underlined the need to focus on stabilising and improving Talvivaara’s production processes in order to return to a sustainable ramp-up path towards the targeted full capacity of 50,000 tonnes of nickel per year. Talvivaara has instituted a number of measures aimed at addressing these challenges in the near term, including removing excess water from the Talvivaara mine site, implementing steps to achieve a closed water circulation system, improving bioheapleaching performance and further improving and maintaining the stability that has been achieved across Talvivaara’s production processes. For more detailed information on these and other measures that Talvivaara is taking, see “—4. Talvivaara’s actions to stabilise and improve its production processes” below.
On 12 February 2013, Talvivaara received a decision from the Kainuu ELY Centre allowing Talvivaara (subject to certain limitations) to discharge 1.8 million cubic metres of water. This decision, combined with the 1.3 million cubic metre discharge limit in Talvivaara’s current environmental permit, allows Talvivaara to progress, in part, with its water management plans. Talvivaara’s water management plans aim to prepare for environmental and other risks caused by excess water at the Talvivaara mine site and excess water within the safety dams as a result of the gypsum pond leakage before the spring melt, as well as to ensure that ore production can resume by July 2013 in accordance with Talvivaara’s production schedule. Resuming ore production also aids the water balance as fresh ore absorbs considerable amounts of water. For more detailed information on the Kainuu ELY Centre’s decision, see “—4.2.1 Removing the excess water from the Talvivaara mine site” below.
Talvivaara’s results of operations in 2012 were further negatively affected by the prevailing low London Metal Exchange nickel price during 2012, which averaged USD 17,530 per tonne, as compared to USD 22,843 per tonne in 2011 and USD 21,811 per tonne in 2010. Talvivaara’s operational challenges and the weak nickel price environment have resulted in increased levels of indebtedness and a strained liquidity position. As at 31 December 2012, Talvivaara had cash and cash equivalents of EUR 36.1 million, total debt of EUR 599.8 million and a net debt position of EUR 563.8 million. The Board believes that Talvivaara’s strained liquidity position is likely to be exacerbated in 2013 by the production impact caused by the prevailing water balance issues as well as the maturity of the Convertible Bonds due 2013 in May 2013. As explained below, Talvivaara is implementing a number of measures to overcome its near-term operational challenges. However, the full effect of these actions will only materialise over time, and Talvivaara currently expects material production ramp-up only from the second half of 2013.
For 2013, Talvivaara expects total nickel production of approximately 18,000 tonnes, total capital expenditure of EUR 60 million and total operating expenditure (including financial leasing) of EUR 230 million. Water balance management measures and improvements are expected to account for approximately EUR 20 million of the total expected capital expenditure and EUR 10 to 15 million of the total expected operating expenditure. Talvivaara’s nickel production target for 2013 is lower than its original production targets for 2010, 2011 and 2012. As Talvivaara’s revenues are heavily dependent on its production volumes, Talvivaara does not expect to generate sufficient revenues in 2013 to finance its operations, including costs and additional investments relating to the water balance issue and environmental incidents at the Talvivaara mine site, and to finance the repayment of the Convertible Bonds due 2013. For more information on Talvivaara’s results of operations, see the audited consolidated financial statements of Talvivaara as at and for the year ended 31 December 2012, which were published on Talvivaara’s website, www.talvivaara.com, on the date of this document.
As at 31 December 2012, the Company had drawn EUR 70 million of the Previous Facility, which was signed in June 2010 when Talvivaara expected to reach an annualised production rate in excess of 30,000 tonnes of nickel by the end of 2010 and the full scale annual production target of 50,000 tonnes of nickel in 2012. Talvivaara obtained waivers of the failure to satisfy the financial and the production covenants in the Previous Facility Agreement, which were tested quarterly, from the lenders for the third and fourth quarters of 2012.
On 13 February 2013, the Company entered into the Amended Facility Agreement, which, among other things, amended the financial and production covenants in the Previous Facility Agreement to reflect Talvivaara’s current business and, therefore, reduces Talvivaara’s risk in relation to compliance with its covenants. Among other conditions subsequent under the Amended Facility Agreement, the Proposed Rights Issue must be completed and the Company must receive net proceeds therefrom of at least EUR 240 million. If any of such conditions subsequent are not satisfied by 30 April 2013, an event of default would occur under the Amended Facility Agreement. A summary of the Amended Facility Agreement (including relevant conditions) is set out in Part IV (Additional Information) of this document.
The Board remains confident in Talvivaara’s longer-term potential, with its significant sulphide nickel resources and cost effective bioheapleaching process following ramp-up, and in the long-term fundamentals of the nickel industry. The Board’s primary focus continues to be preserving and enhancing value for all Shareholders. The primary operational focus of Talvivaara in the near term is on improving its productivity by taking actions designed to address the recent challenges.
The Board believes that Talvivaara needs to secure additional funds in order to meet its working capital needs and finance its debt maturities, including the Convertible Bonds due 2013, in the short term. The Board has concluded that it is necessary to raise additional equity through the Proposed Rights Issue, which is expected to 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. Receipt of the proceeds from the Proposed Rights Issue will also satisfy a condition subsequent under the Amended Facility Agreement.
The Proposed Rights Issue is conditional upon the Resolutions being passed by Shareholders at the Extraordinary General Meeting. Therefore, if the Resolutions are not passed at the Extraordinary General Meeting, the Proposed Rights Issue will not proceed. If the Company does not receive net proceeds of at least EUR 240 million from the Proposed Rights Issue by 30 April 2013, an event of default would immediately occur under the Amended Facility Agreement. An event of default could cause a significant portion of Talvivaara’s borrowings to become repayable on demand. Furthermore, without securing additional funds through the Proposed Rights Issue, Talvivaara will likely run out of cash and will be unable to finance its planned operations or repay its debts, including the Convertible Bonds due 2013 when they mature in May 2013. Such events may require the sale of the Talvivaara mine, the Company or the Company’s 84 per cent shareholding in Talvivaara Sotkamo, which owns the Talvivaara mine, and result in the insolvency and, ultimately, liquidation of the Company. As a result, Shareholders could lose their investment in the Company.
In order to ensure that it has sufficient liquidity until it receives the proceeds from the Proposed Rights Issue, Talvivaara has entered into amendment agreements with Cameco and Nyrstar to secure additional liquidity. On 12 February 2013, Talvivaara Sotkamo entered into an amendment agreement with Cameco concerning the uranium take-in-kind agreement entered into in February 2011 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. For information on the uranium take-in-kind agreement, including the terms of repayment for the up-front investment, see Part IV (Additional Information) of this document. In addition, on 14 February 2013, Talvivaara Sotkamo entered into an amendment agreement with Nyrstar regarding the zinc in concentrate streaming agreement entered into in January 2010 pursuant to which Nyrstar is to make an 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 Board expects that the terms of the Proposed Rights Issue will be announced on or around 8 March 2013, and that full details of the Proposed Rights Issue, including the terms, pricing and expected net proceeds of the Proposed Rights Issue, will be included in a Prospectus to be published, subject to approval by the FFSA, on or around 13 March 2013. The Board expects that the Proposed Rights Issue will seek to raise approximately EUR 260 million in gross proceeds (approximately EUR 249 million in net proceeds). In connection with the Proposed Rights Issue, the Company has entered into the Standby Underwriting Letter with the Managers, pursuant to which the Managers have undertaken to underwrite, subject to certain conditions discussed in detail in Part IV (Additional Information) of this document, such portion of the Proposed Rights Issue that is not subject to the Shareholder Commitments. As at the date of this document, the Managers’ obligation to underwrite the Proposed Rights Issue under the Standby Underwriting Letter remains subject to certain conditions precedent discussed in detail in Part IV (Additional Information) of this document, including (i) the approval of Resolutions at the Extraordinary General Meeting; (ii) the Shareholder Commitments and the Mr Perä Additional Subscription Commitment remaining valid and enforceable; (iii) the Managers and their advisors completing to their satisfaction their respective business, technical, environmental, financial and legal due diligence investigations; (iv) the decision of the Kainuu ELY Centre to permit Talvivaara to discharge 1.8 million cubic metres of water being in full force and effect; (v) the Amended Facility being in full force and effect; and (vi) certain other conditions precedent, including no material adverse change, or any development or event involving or reasonably likely to have a prospective material adverse change, in the business, condition (financial, legal or otherwise) or results of operations or prospects of Talvivaara having occurred; no force majeure event having occurred; and no breach of warranty having occurred.
The Company will only proceed with the Proposed Rights Issue if Shareholders approve the Resolutions at the EGM and such portion of the Proposed Rights Issue that is not subject to the Shareholder Commitments is fully underwritten. The Company has received irrevocable undertakings from its three largest Shareholders, Mr Pekka Perä, Solidium and Varma Mutual Pension Insurance Company, to vote in favour of the Resolutions in respect of 104,181,306 Shares in aggregate, representing approximately 38.3 per cent of the Shares in issue on the date of this document.
The number of New Shares to be issued will be determined by the Board after the Resolutions have been passed at the Extraordinary General Meeting and it will depend on the subscription price to be determined by the Board based on the authorisation for the Proposed Rights Issue from the Shareholders. The subscription price is expected to be in euros and to be set with reference to a discount to the theoretical ex-rights price, which will be in line with similar rights issues undertaken in the UK and Finnish markets, and having regard to, amongst other things, investor feedback, Talvivaara’s operational performance, market conditions, any relevant requirements of the Listing Rules and the market price of the Shares over the five days preceding the determination of the subscription price. The subscription price is expected to be announced on or around 8 March 2013. The Proposed Rights Issue
will be structured as is customary for Finnish companies. For more information, see Part III (Some Questions and Answers on the Proposed Rights Issue) of this document.
The maximum number of New Shares that may be issued by the Company pursuant to the authority sought in the Rights Issue Resolution is 26,000,000,000. This authority has been proposed by the Board to (i) ensure that it has authority to allot sufficient Shares to raise approximately EUR 260 million in the Proposed Rights Issue; (ii) provide it with the flexibility to propose an appropriate exchange ratio in respect of the Proposed Rights Issue; and (iii) limit, to the extent practicable, the extent to which fractional entitlements arise from the Proposed Rights Issue. Further, as a result of the Proposed Rights Issue, an adjustment to the conversion price in accordance with the terms and conditions of the Convertible Bonds must be made if the Company undertakes a rights issue at a price which is less than 95 per cent of the market price of the Shares on the date of the first public announcement of the terms of the rights issue, as specified in more detail in the terms and conditions of the Convertible Bonds. As a result of such adjustment, the number of Shares to be issued by the Company upon conversion of the Convertible Bonds will increase. The Adjustment Authorisation Resolution will enable the Board to decide upon the requisite Adjustment regarding the Convertible Bonds due 2013 once the terms of the Proposed Rights Issue have been decided. In addition, the Proposed Rights Issue would require an adjustment to the share subscription prices of the Options and to the number of Shares available for subscription based on the Options. No separate share issuance authorisations are required for the adjustment of the conversion price of the Convertible Bonds due 2015 or the number of Shares available for subscription based on the Options because the decisions regarding the issuance of special rights in relation to the Convertible Bonds due 2015 and of the Options were made at the general meeting of Shareholders. The purpose of this document is to (i) explain the background and reasons for the Proposed Rights Issue; (ii) explain why the Board unanimously considers the Proposed Rights Issue to be in the best interests of Shareholders as a whole; (iii) explain why the Board unanimously considers the authorisation to the Board to decide to issue up to 600,000,000 new Shares to address the Adjustment to the terms of the Convertible Bond due 2013 to be in the best interests of Shareholders as a whole; and (iv) present the recommendation of the Board that you vote in favour of the Resolutions as, in its opinion, the Proposed Rights Issue and the authorisation to the Board to decide to issue up to 600,000,000 new Shares to address the Adjustment to the terms of the Convertible Bond due 2013 are in the best interests of Shareholders as a whole.
2. Business of Talvivaara
2.1 Overview
Talvivaara is an internationally significant base metals producer with a primary focus on nickel and zinc. Talvivaara’s main asset is the Talvivaara mine in Sotkamo, Finland. The Talvivaara polymetallic deposits, Kuusilampi and Kolmisoppi, together comprise one of the largest known sulphide nickel resources in Europe. The classified mineral resources are currently estimated by Talvivaara at 2,053 million tonnes of ore, of which 1,305 million tonnes are in measured and indicated categories according to the JORC Code. The mining license and mining concession covering the Talvivaara deposits are owned by Talvivaara Sotkamo, which is an 84 per cent owned subsidiary of the Company.
Talvivaara develops its deposits using a technology known as bioheapleaching. This technology harnesses locally occurring, live bacteria to extract metals from ore. Since commencing commercial operations in 2009, Talvivaara has demonstrated the viability of bioheapleaching technology to extract nickel from the Talvivaara ore. As by-products of nickel production, Talvivaara produces zinc and cobalt and also commenced production of saleable quantities of copper in October 2012. In addition, in February 2010, Talvivaara announced its plan to recover uranium oxide in the form of “yellow cake” as a by-product of nickel production. Talvivaara has already obtained a permit from the Finnish Government for uranium extraction under the Nuclear Energy Act (990/1987, as amended) and the necessary European Union permits, but Talvivaara’s uranium production remains subject to, amongst other conditions, receipt of the environmental permit for uranium extraction. The permit decision for uranium extraction is expected in the first half of 2013 in conjunction with the renewal of Talvivaara’s environmental permit. Construction of the uranium extraction facility began following the receipt of the construction permit in August 2011 and was almost completed at the end of 2012.
Talvivaara produces metal intermediates, which it supplies to companies with metal refining operations. In February 2005, Talvivaara Sotkamo entered into a 10-year sale and purchase agreement with Norilsk Nickel for all of the Talvivaara mine’s nickel and cobalt production, at market prices, until at least 300,000 tonnes of nickel have been delivered. In January 2010, Talvivaara Sotkamo entered into a zinc in concentrate streaming agreement with Nyrstar for the sale of its entire zinc in concentrate production until a total of 1.25 million tonnes has been
delivered. Further, Talvivaara Sotkamo entered into a uranium off-take agreement with Cameco in February 2011. Talvivaara sells its copper production under spot arrangements.
2.2 Mineral Resources
The following table sets forth mineral resource information on the Talvivaara deposits as a whole:
Grade Tonnage(1) Ni Zn Co Cu U (tonnes in millions) (per cent) Measured ... 504 0.23 0.50 0.02 0.13 0.0017 Indicated ... 801 0.23 0.51 0.02 0.13 0.0017 Sub total ... 1,305 0.23 0.50 0.02 0.13 0.0017 Inferred ... 748 0.21 0.49 0.02 0.12 0.0018 Total ... 2,053 0.22 0.50 0.02 0.13 0.0017 __________
(1) Mineral resources are quoted at 0.07 per cent cut-off for nickel.
The mineral resources in these ore bodies have been classified according to the JORC Code. The Competent Person as defined by the JORC Code is currently Mr Hannu Lahtinen.
2.3 Production
Upon the successful completion of the ramp-up of its production, Talvivaara’s full-scale annual production targets are 50,000 tonnes of nickel, 90,000 tonnes of zinc, 15,000 tonnes of copper, 1,800 tonnes of cobalt and 350 tonnes of uranium. Talvivaara’s existing environmental permit, which is currently being renewed, relates to nickel production of 30,000 tonnes per year, and the application for an environmental permit allowing full-scale production is expected to be submitted in 2013.
The following table sets forth Talvivaara’s key production information for the years indicated:
For the year ended 31 December
2012 2011 2010
(tonnes in millions, unless otherwise indicated) Mining Ore production ... 8.7 11.1 13.3 Waste production ... 5.3 17.0 16.7 Materials handling Stacked ore ... 8.7 11.1 13.3 Bioheapleaching
Ore under leaching ... 44.3 35.6 24.3
Metals recovery
Nickel metal content, tonnes ... 12,916 16,087 10,382 Zinc metal content, tonnes ... 25,867 31,815 25,462
The following diagram sets forth the production process at the Talvivaara mine:
Talvivaara’s production process begins with large-scale open-pit mining, followed by materials handling covering all the physical ore processing steps from primary crushing to stacking and leaching of the ore in heaps.
During the leaching process, metals are leached from the ore as a result of bacterial catalysis. Crushed ore is used as the starting material and leaching is activated by the irrigation and aeration of ore in the heaps. The heap is equipped with piping for aeration and irrigated with leach solution, which is recycled through the heap until its metal content is sufficient for metals recovery. Several physico-chemical and microbiological process parameters, such as the acidity of the irrigation solution, the rate of irrigation, the rate of removal of the pregnant leach solution (“PLS”) and the rate of aeration, are continuously monitored and adjusted in order to help Talvivaara enhance and speed up the leaching process. The ore is first leached on the primary heap pad (for approximately 13 to 14 months at full-scale production), after which the partially leached ore is reclaimed, conveyed and re-stacked on the secondary heap pad. After secondary leaching, the leached ore remains on the secondary heaps permanently. Once a sufficient metal concentration is reached, a continuous side stream of metal-containing PLS is led from leaching solution circulation to the metals recovery plant, where metals are precipitated from the PLS using chemicals. The resulting products are metal intermediates – copper and zinc sulphides and a mixed nickel cobalt sulphide – which are sold to companies with metal refining operations. Talvivaara is also constructing an extraction circuit to recover uranium oxide in the form of “yellow cake” from the PLS, with production expected to commence during the summer of 2013, subject to receiving all the necessary permits.
Process waste, primarily gypsum, is taken to designated waste ponds. Water, from which the saleable metals and other elements such as iron have been removed, is returned to circulation to irrigate the ore heaps. All structures in contact with ore or leach solutions are insulated from the surrounding environment by permanent physical barrier layers.
3. Background to and Reasons for the Proposed Rights Issue
3.1 Introduction
The construction of the Talvivaara mine commenced in April 2007 and Talvivaara completed its build-up phase in less than two years, commencing production of saleable products in February 2009. Following this, however, Talvivaara has faced a number of challenges during the ramp-up of its operations, which have resulted in Talvivaara not achieving its original production targets for 2010, 2011 and 2012. In particular, events during 2012 have underlined the need to focus on stabilising and improving Talvivaara’s production processes, including addressing water balance issues and enhancing bioheapleaching performance, in order to return to a sustainable ramp-up path towards the targeted full capacity of 50,000 tonnes of nickel per year. Talvivaara has instituted a number of measures aimed at addressing these challenges in the near term, which are described in more detail below.
As production volumes, along with the price of nickel and other metals that Talvivaara produces, are the primary factors affecting Talvivaara’s revenues, lower than expected production volumes and weak nickel prices in 2012 have resulted in increased levels of indebtedness and strained Talvivaara’s liquidity position.
3.2 Production Review
3.2.1 Shortfall in Achieved Production Levels
Talvivaara has faced a number of challenges during the ramp-up of its operations, resulting in lower than expected production levels. Initially, the output of Talvivaara’s crushing circuit did not meet targeted levels and required significant modifications and the construction of additional capacity. The crushing issues restricted the production of new ore, thereby delaying the ramp-up of production, and slow heap build-up also impacted bioheapleaching performance as metals back-precipitated in the oldest section of the heap. In 2010 and 2011, Talvivaara faced further operational bottlenecks with the poor performance of primary heap reclaiming equipment and the restricted availability of the metals recovery plant. Whilst these challenges have delayed the progress of production ramp-up, no fundamental issues preventing production at full capacity have been identified, and Talvivaara has been successful in implementing measures to remove the identified bottlenecks.
In 2010, Talvivaara produced 10,382 tonnes of nickel, as compared to the original production target of approximately 30,000 tonnes of nickel, and in 2011, 16,087 tonnes of nickel, as compared to the original production target of between 30,000 and 35,000 tonnes of nickel. Notwithstanding the challenges in 2011, Talvivaara produced 4,769 tonnes of nickel during the fourth quarter of 2011, which was more than it had produced in any previous quarter. The monthly volumes that Talvivaara achieved in December 2011 indicated that the production rates required to achieve the original annual production target for 2012 of between 25,000 and 30,000 tonnes of nickel had nearly been reached. Production during the fourth quarter of 2011 benefitted from improved availability of the metals recovery plant, which, at 85 per cent, was at the level expected to be maintained in 2012. However, as described in more detail below, Talvivaara again faced a number of challenges during 2012, which led to Talvivaara producing 12,916 tonnes of nickel during the year, as compared to its original production target for 2012 of between 25,000 and 30,000 tonnes, which had been set based on the promising results achieved during the fourth quarter of 2011.
Despite the operational challenges faced during 2012, particularly in relation to the water balance, Talvivaara has continued to achieve significant improvements in equipment availabilities and run-rates. The average leach solution flow rate through the metals recovery plant increased to 1,043 cubic metres per hour in 2012, as compared to 880 cubic metres per hour in 2011 and 685 cubic metres per hour in 2010. Solution flow rates at the metals recovery plant in December 2012 varied from around 800 cubic metres per hour to 1,400 cubic metres per hour, outside of short-term disturbances in the automation systems, which resulted in short periods of lower flow rates, and reached 1,500 cubic metres per hour in January 2013. Talvivaara achieved a record average solution flow rate at the metals recovery plant of 1,422 cubic metres per hour in January 2013 and the process availability of the metals recovery plant was 98 per cent for the month. Talvivaara expects to ramp-up to approximately 1,600 cubic metres per hour in the near future. Furthermore, equipment availabilities in materials handling approached levels required for production at full capacity before the suspension of ore production in September 2012 as detailed below and Talvivaara believes that there is strong evidence of leaching performance quickly improving in heap sections from which excess water has been removed. In January 2013, Talvivaara produced 1,034 tonnes of nickel. The Board believes that these positive developments position Talvivaara well for future production ramp-up once the near-term water balance and bioheapleaching performance challenges have been addressed.
3.2.2 Fatality at the Metals Recovery Plant
In mid-March 2012, a Talvivaara employee died following a fatal incident at its metals recovery plant area. The fatality was caused by a localised, temporary discharge of excess hydrogen sulphide gas from the metals recovery process. Following the incident, Talvivaara immediately lowered solution flow into the metals recovery plant and subsequently also started a maintenance stoppage at the metals recovery plant, which was prolonged by an unscheduled stoppage focused on preventive occupational safety-related modifications and improvements. The metals recovery plant was re-started by mid-April 2012; however, production at the metals recovery plant was restricted for most of April due to the stoppage and subsequent changes to certain operating procedures, the implementation of which slowed the ramp-up after the re-start.
In order to further improve occupational safety and minimise the risk of incidents at the Talvivaara mine site, a number of measures have been implemented in 2012. Operationally, safety instructions have been further refined and developed, access practices in the vicinity of the metals recovery plant have been altered and additional fixed gas detectors have been installed. Occupational safety-related modifications in the metals recovery process include, among others, increased scrubbing of hydrogen sulphide gases and improved control of the hydrogen sulphide feed into the process.
3.2.3 Water Balance Challenges and Leaching Performance
Since the spring and summer of 2012, Talvivaara has faced an increasingly challenging water balance situation. In addition to raw water from lake Kolmisoppi, the water intake includes rainfall, melt water and natural catchment water from an extensive area including the primary heaps, secondary heaps, process ponds, gypsum pond, open pit and all areas where water is contaminated by exposed ore. Some excess water has accumulated at the mine site over time as Talvivaara’s existing environmental permit limits the amount of water that can be released into the environment to 1.3 million cubic metres per year. The water balance situation became increasingly challenging during the course of 2012 as a result of the rapid snow melting in the spring and historically heavy rainfall in the spring and summer, which materially increased the amount of excess water that had been accumulating at the mine site. Because of the excess water accumulating, Talvivaara has been forced to store excess water in the solution circulation, process ponds, open-pit mine and gypsum pond. The challenging water balance situation impacted Talvivaara’s metals production throughout 2012 as metal grades in the leach solution were diluted by the addition of increasing amounts of excess water into the solution circulation. It also led to Talvivaara temporarily suspending the production of new ore as of September 2012 and eventually culminated in a leakage of the gypsum pond in November 2012.
The excess water in circulation and reduced evaporation diluted the metal grades in the leach solution, and the high water content in the heaps also negatively affected leaching performance by reducing the efficiency of aeration. As a result, the average nickel grade in the solution pumped to the metals recovery plant decreased from the second quarter of 2012 through to the end of 2012, recording 1.8 grams per litre in the second quarter of 2012, between 1.5 and 1.6 grams per litre in the third quarter of 2012 and 1.3 grams per litre in the fourth quarter of 2012. Towards the end of the year, the solution grade was further affected by the gypsum pond leakage discussed below, which has forced Talvivaara to maintain maximum levels of water in heap solution circulation to manage the overall water balance at the mine site. The depressed metal grades in leach solution significantly impacted Talvivaara’s metals production throughout most of 2012 and Talvivaara currently expects it to continue to significantly impact production in 2013.
3.2.4 Temporary Suspension of New Ore Production
The water balance situation at the Talvivaara mine in 2012 also affected Talvivaara’s mining operations. Talvivaara had to mine lower-grade ore from a more distant location than originally planned starting in the summer of 2012 as a portion of the excess water that had accumulated at the mine site was stored in the open pit. Despite this, a record level of 1.5 million tonnes of ore was mined and subsequently crushed in July 2012 and equipment availabilities in materials handling approached the levels required for full-scale production. However, due to the prevailing water balance issues and as Talvivaara already had a significant inventory of nickel in the heaps, Talvivaara decided to alter its production scheme starting in September 2012 such that mining and crushing operations were restricted and the equipment and resources of Talvivaara’s mining department were used to enhance reclaiming of the primary heaps and in safeguarding measures in relation to the gypsum pond leakage. During the suspension of ore production, some waste rock mining continued during the fourth quarter of 2012 and the mining department produced 1.2 million tonnes of waste rock, which was used in the construction of secondary heap foundations.
Talvivaara currently expects the temporary suspension of ore production to continue through June 2013 and that mining will recommence by July 2013 once the open pit has been de-watered and the overall measures to improve the water balance have been implemented. De-watering of the open pit started in September 2012, but experienced a set-back in November, when the gypsum pond leakage forced Talvivaara to again divert water into the open pit in order to minimise the environmental effects of the leakage. Despite the temporary suspension of ore production, Talvivaara believes that the existing inventory of approximately 50,000 tonnes of nickel in the heaps will provide sufficient supply of metals for a reasonable production increase in 2013 in order to meet the nickel production target of approximately 18,000 tonnes. Talvivaara is also considering mining ore from the Southern end of the open pit, which is not affected by the excess water, prior to the currently planned re-start of mining at the main part of the open pit by July 2013. Talvivaara estimates that the suspension of ore production generated cost savings of approximately EUR 20 million in the fourth quarter of 2012, and expects further savings of at least EUR 30 million in 2013 assuming that the suspension of ore production continues through June 2013.
3.2.5 Gypsum Pond Leakage
On 4 November 2012, Talvivaara announced that it had detected a leakage in the gypsum pond, where a portion of the water that accumulated at the Talvivaara site in 2012 was stored in order to prevent the release of water in excess of the limit of 1.3 million cubic meters in Talvivaara’s environmental permit. As a precautionary measure, the operations of the metals recovery plant were temporarily suspended when Talvivaara discovered the leakage in order to avoid further pumping into the gypsum pond while the leakage was being repaired. The leakage was located on 7 November 2012, the majority of it was stemmed during the following days and it was completely stopped on 14 November 2012. While most of the water that leaked from the pond was contained within the mining concession area by existing dams and the newly built fourth safety dam, some of the leakage water was discharged into the environment while the fourth safety dam was being constructed. Talvivaara took action to neutralise the released waters using lime, which reduced the metals contents in the leakage water and increased its pH prior to it flowing into the downstream waters. Before the leakage was completely stopped, some elevated nickel concentrations were detected in the nearby waters, but the effects were only seen in the vicinity of the mining concession area. On 21 November 2012, the Kainuu ELY Centre granted Talvivaara a permit to restart its metals recovery plant following the stoppage and Talvivaara successfully restarted the plant the same day. Since the successful re-start on 21 November 2012, plant performance has in general been satisfactory. However, some short-term disturbances in the automation systems impacted production in December 2012 and are being investigated to avoid future recurrence. In January 2013, the average solution flow rate at the metals recovery plant exceeded 1,400 cubic metres per hour and Talvivaara expects to ramp-up approximately 1,600 cubic metres per hour in the near future. In the fourth quarter of 2012, Talvivaara recorded EUR 23.0 million in non-recurring costs and provisions related to the gypsum pond leakage and water management. Talvivaara and the authorities continue to monitor the situation and expect to be able to determine the eventual impact of the leakage during summer of 2013.
In November 2012, the Board established a committee to investigate the circumstances and reasons that led to the gypsum pond leakage and to reduce the risk of similar problems in the future. The committee is chaired by the Chairman of the Board, Mr Tapani Järvinen, and the committee also includes Ms Kirsi Sormunen. In December 2012, Talvivaara announced that the committee had commissioned VTT Technical Research Centre of Finland to conduct an independent study of the reasons and circumstances leading to the leakage.
3.3 Nickel Price Environment
Talvivaara’s results of operations in 2012 were further negatively affected by the prevailing low London Metal Exchange nickel price during 2012, which averaged USD 17,530 per tonne, as compared to USD 22,843 per tonne in 2011 and USD 21,811 per tonne in 2010.
3.4 Reasons for the Proposed Rights Issue
The Board believes that Talvivaara has demonstrated the technological and commercial viability of the Talvivaara Sotkamo operation, including the use of the bioheapleaching technology for the extraction of metals from the Talvivaara ore in a subarctic climate. The challenges described above, however, have resulted in increased levels of indebtedness and a strained liquidity situation. As at 31 December 2012, Talvivaara had cash and cash equivalents of EUR 36.1 million, total debt of EUR 599.8 million and a net debt position of EUR 563.8 million.
During 2013, Talvivaara plans to focus on improving and stabilising its production processes and addressing the water balance issues using the knowledge it has gained during the ramp-up of its operations so far in order to subsequently return to a sustainable ramp-up path towards the targeted full capacity of 50,000 tonnes of nickel per year. However, the measures Talvivaara is taking to stabilise and increase production on a sustainable basis are
expected to take several months, and during this time, metals production is expected to remain restricted by depressed metals grades in leach solution. Accordingly, Talvivaara has set a nickel production target for 2013 of approximately 18,000 tonnes, which is lower than its original production targets for 2010, 2011 and 2012. The key drivers for Talvivaara’s production level in 2013 include the near-term development in the water balance, the timing of restart of ore production and the effectiveness of bioheapleaching following the measures being taken to reverse the recent effects of excess water and insufficient aeration.
The Board believes that Talvivaara’s strained liquidity position is likely to be exacerbated in 2013 by the production impact caused by the prevailing water balance issues as well as the maturity of the Convertible Bonds due 2013 in May 2013. For 2013, Talvivaara expects total nickel production of approximately 18,000 tonnes, total capital expenditure of EUR 60 million and total operating expenditure (including financial leasing) of EUR 230 million. Water balance management measures and improvements are expected to account for approximately EUR 20 million of the total expected capital expenditure and EUR 10 to 15 million of the total expected operating expenditure. Talvivaara’s nickel production target for 2013 is lower than its original production targets for 2010, 2011 and 2012. As Talvivaara’s revenues are heavily dependent on its production volumes, Talvivaara does not expect to generate sufficient revenues in 2013 to finance its operations, including costs and additional investments relating to the water balance issue and environmental incidents at the Talvivaara mine site, and to finance the repayment of the Convertible Bonds due 2013.
If the Resolutions are not passed, the Proposed Rights Issue is not completed and the Company does not receive net proceeds therefrom of at least EUR 240 million, or if other conditions subsequent under the Amended Facility Agreement are not satisfied by 30 April 2013, an event of default would immediately occur under the Amended Facility Agreement. An event of default could cause a significant proportion of Talvivaara’s borrowings to become repayable on demand. Furthermore, without securing additional funds through the Proposed Rights Issue, Talvivaara will likely run out of cash and will be unable to finance its planned operations or repay its debts, including the Convertible Bonds due 2013 when they mature in May 2013. Such events may require the sale of the Talvivaara mine, the Company or the Company’s 84 per cent shareholding in Talvivaara Sotkamo, which owns the Talvivaara mine, and result in the insolvency and, ultimately, liquidation of the Company. As a result, Shareholders could lose their investment in the Company.
The Proposed Rights Issue is expected to 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.
4. Talvivaara’s Actions to Stabilise and Improve its Production Processes
4.1 Overview
Talvivaara’s focus in the near term is on stabilising and improving its production processes and addressing the water balance issues in order to allow it to return to a sustainable ramp-up path towards full capacity. Talvivaara has instituted a number of measures aimed at addressing the near-term operational challenges, which are described in more detail below. However, the full effect of these actions will only materialise over time, and Talvivaara currently expects material production ramp-up only from the second half of 2013 onwards.
In support of this focus, Talvivaara re-organised its management and Mr Tapani Järvinen was appointed Chairman of the Board and Mr Pekka Perä was appointed CEO in November 2012. In addition, Mr Harri Natunen was appointed Chief Operations Officer. The appointments are of interim nature and will be in place until further notice and at least until Talvivaara’s operations have been stabilised following the challenges faced in 2012. For information on additional recent changes to the Company’s management see “—5. Management Update” below.
4.2 Addressing the Water Balance Issues
Talvivaara has taken a number of steps to address the water balance issues since they first appeared. Talvivaara’s original strategy was to gradually address the issue of excess water at the Talvivaara mine site; however, the gypsum pond leakage exacerbated the situation and highlighted the necessity to take more immediate action. In order to facilitate an efficient and sustainable solution to the water balance issues, Talvivaara has established a special task force, Operation Otter. Operation Otter is headed by Ms Maija Vidqvist, General Manager, Water Management, reporting directly to the Company’s CEO, Mr Pekka Perä. Ms Vidqvist has extensive experience in environmental and water treatment technologies and processes across various industries and countries, including, for example, membrane technology and reverse osmosis-based water treatment. 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 neutralisation measures to secure a sustainable water balance at the mine site.
4.2.1 Removing the Excess Water from the Talvivaara Mine Site
In order to reach a sustainable water balance situation, Talvivaara believes that it must treat and release into the environment approximately 3.8 million cubic metres of water, a substantial proportion of which is rain and natural catchment water that has accumulated at the mine site over time. On 22 January 2013, Talvivaara submitted a notification to the Kainuu ELY Centre of its plan to discharge 3.8 million cubic metres of water.
On 12 February 2013, Talvivaara received a decision from the Kainuu ELY Centre allowing Talvivaara (subject to certain limitations) to discharge 1.8 million cubic metres of water. This decision, combined with the 1.3 million cubic metre discharge limit in Talvivaara’s current environmental permit, allows Talvivaara to progress, in part, with its water management plans. In addition, Talvivaara may direct 0.5 million cubic metres of water from the open pit into the Kuusilampi pond, which is in the vicinity of the open pit. According to the Kainuu ELY Centre, the AVI, the agency responsible for Talvivaara’s environmental permit, can permit Talvivaara to discharge additional water by amending the term of Talvivaara’s current environmental permit. Talvivaara has applied to have the discharge limit removed in connection with the renewal of its environmental permit and the Kainuu ELY Centre has informed Talvivaara that it has officially notified the AVI about the matter and requested that the AVI make a formal decision on whether the terms of Talvivaara’s environmental permit could be amended in relation to the permitted amount of water discharge. Talvivaara believes that this may assist in having the discharge limit removed prior to receiving the decision on the renewal of Talvivaara’s environmental permit. The Kainuu ELY Centre has informed Talvivaara that it can consider increasing the discharge limit beyond the initially granted 1.8 million cubic metres of water if applied for by Talvivaara and if no executable decision has been received from the AVI for the amendment or removal of the discharge limit in Talvivaara’s current environmental permit and the discharge limit of 1.8 million cubic metres under the decision is about to be exhausted.
Talvivaara believes that the Kainuu ELY Centre’s decision will enable the commencement and partial implementation of the planned water management arrangements in the short term as well as enable the re-start of ore production by July 2013 in accordance with its production plan. However, the Kainuu ELY Centre’s decision can be appealed by interested persons, interest groups and public sector bodies, including municipalities. The Finnish Nature Conservation Society, an NGO, has filed such an appeal together with a request that any discharges of water immediately be prohibited until the appeal has been ruled upon. Under certain circumstances provided for under Finnish law (e.g., if the applicant had submitted materially erroneous or incomplete information), the Kainuu ELY Centre can modify or rescind its decision. A rescission or modification by the Kainuu ELY Centre may result in a prohibition of or otherwise impede (temporarily or permanently) the discharge of excess water. Furthermore, the appeal by the Finnish Nature Conservation Society or any other appeal may take an extended period of time to resolve, and may eventually result in a prohibition of or otherwise impede (temporarily or permanently) the discharge of excess water.
If Talvivaara were required to comply with its current environmental permit allowing for the discharge of only 1.3 million cubic metres of water per year, the excess water could delay recommencement of ore production at Talvivaara’s mine significantly beyond the planned recommencement by July 2013. Talvivaara considers that the discharge of the entire 3.8 million cubic metres of water is necessary to moderate the current water balance and lower the operational risk level in the longer term. In order to reach a sustainable longer-term water balance, Talvivaara considers the removal of the 1.3 million cubic metre water discharge limit from Talvivaara’s environmental permit to be necessary.
Talvivaara will commence neutralisation and discharge of waters from the mine site without delay. The quality of the discharged waters is targeted to be in line with Talvivaara’s current environmental permit and will be continuously monitored. 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.
At the metals recovery plant, iron precipitation and final neutralisation capacities of process waters are being improved in order to further increase recycling of process waters and to ensure that any discharged waters are of sufficiently good quality. Similarly, the utilisation of the reverse osmosis based water treatment plant is being optimised and additional capacity will be installed during the spring of 2013. Furthermore, Talvivaara is investing in additional lime slaking capacity to increase its neutralisation capacity for the treatment of mine and process waters.
Talvivaara continues to neutralise the waters currently stored within the safety dams and in the Kuusilampi pit, and is constructing additional neutralisation facilities at the Southern end of the mine area close to the Kortelampi safety dam as well as close to the open pit. The Kortelampi safety dam, which was initially built to contain the leak, was elevated to its final height in early January 2013. In addition, several additional dam structures both in the Southern and Northern directions from the mine are planned and will be constructed as part of Operation Otter, thereby further preparing the mine area for the forthcoming spring melt and mitigating the risk of environmental impacts from any potential future leak situation.
Water balance management measures and improvements are expected to account for approximately EUR 20 million of the total expected capital expenditure and EUR 10 to 15 million of the total expected operating expenditure. However, evaluation and planning of the necessary measures continues and may still have some impact on the expenditure.
4.2.2 Resuming Mining Operations
As at the date of this document, approximately 1.8 million cubic metres of excess water are in the open pit. Talvivaara expects to resume mining operations at the open-pit mine once it has been de-watered as described above. Talvivaara currently estimates based on available information that mining operations in the open pit will resume by July 2013. Prior to the currently planned re-start of mining of the main part of the open pit, Talvivaara is considering mining up to 3 million tonnes of ore at the Southern end of the open pit, which is not affected by the excess water. This option would provide additional support for the planned ramp-up in late 2013 and also benefit the water balance, as newly mined and crushed ore absorbs substantial amounts of water.
4.2.3 Achieving a Closed Water Circulation System in the Medium Term
In the medium term, Talvivaara’s goal is to implement a closed water circulation system, which is expected to reduce the risk of weather conditions impacting Talvivaara’s operations or environmental safety. Key elements of the targeted closed water circulation system include additional purification of process waters and more efficient separation of process waters and captured rain and natural catchment water. Talvivaara commissioned a new water treatment plant utilising two reverse osmosis-based units in November 2012 for purposes of process water purification, and a third unit is expected to be commissioned in the spring of 2013. The reverse osmosis technology enables Talvivaara to significantly reduce or completely stop raw water intake into the process, which is necessary to achieve a closed water circulation system. Overall, Talvivaara believes that the necessary equipment and structures are already in place to achieve a closed water circulation system. However, the excess water currently in the mine site has to be neutralised and discharged and the overall water balance moderated before a closed water circulation system can be achieved.
4.3 Enhancing Bioheapleaching Performance
In recent years, Talvivaara has focused primarily on the build-up of infrastructure and the operation of the crushing circuit and the metals recovery plant at the Talvivaara mine and less on the bioheapleaching process. Talvivaara believes that it has demonstrated that the bioheapleaching process works by achieving nickel recoveries of up to 85 per cent in less than two years of primary leaching in certain heap sections, which is above original expectations. However, performance across all production heaps has not yet been uniform and Talvivaara is now focusing on enhancing it. Talvivaara has undertaken an extensive study to further identify the factors impacting leaching performance, and as a result identified a number of additional measures to improve leaching results. As part of the study, production heap sections have been opened to determine leaching properties within the heap. Whilst some areas in the opened sections had been well oxidised and leaching results were optimal, several other areas were found where aeration had been inefficient and where the ore remained clearly unreacted. Multiple changes are being implemented to ensure constant and balanced distribution of air within heaps, including elimination of aeration pipe blockages, alterations in the physical design of future primary heaps and aeration pipes, and an improved drainage system. In the near term, Talvivaara continues to focus on reclaiming and re-stacking of the existing primary heaps in order to enable efficient recovery of the existing nickel inventory in the heaps. Preliminary results since September 2012 indicate improved leaching, as less effectively leached sections are being oxidised better.
Development work is also on-going to improve agglomeration quality, as the moisture content and stability of agglomerates are key factors affecting leaching times and recovery rates. Data from copper heap leaching operations suggests up to 30 to 50 per cent improvements in leaching times depending on the quality of agglomerates.
