Government’s goal remains a commercially viable solution for the Talvivaara mine

The Government has today, 17 June 2015, submitted to Parliament a supplementary budget proposing that EUR 112 million related to the Talvivaara mine ownership and financing arrangements be allocated to the capitalisation of Terrafame Oy (“Terrafame”), which is wholly-owned by the State of Finland. The supplementary budget proposal also alternatively provides for the possible orderly closure of the mine. Of the sum, it is proposed that EUR 2 million be reserved for piloting of possible additional water purification measures at the mine.

Government’s primary objective is still a commercial solution – Talvivaara in overtime

The goal is still to actively pursue a commercially viable solution for the Talvivaara mine. The objective is for mining to continue on an economically viable and environmentally sustainable basis. Financial and ownership arrangements relating to Talvivaara must be made, however, during summer 2015 so that mining activity can begin before the autumn and conditions for the continuation of mining can be secured.  

“In sporting terms, the fate of mining operations at Talvivaara is in overtime. Now it must be demonstrated that the business can be profitable and functional in two years, based on a business plan,” says Minister of Economic Affairs Olli Rehn.

For scheduling reasons, the Government must prepare for the fact that Terrafame can commit, at least initially possibly on its own, to the capitalisation of a new mining company and that other investors would commit to the project only later.

“If the new mining company were to start operating without significant private ownership and financing, the Government’s aim would be to actively expand the new company’s ownership and financial structure on a commercially sound basis. To support the Government in the start-up and further development of mining activity, there would be an operational partner from the beginning. Audley has strong expertise in the management and development of mining operations, and we will continue negotiating with Audley on an operational partnership,” says Rehn. 

Advance conditions for a commercial mining solution

The continuation of mining activity on a commercial basis at Talvivaara still requires a number of conditions to be met, however. One key condition is that the Vaasa Administrative Court does not prohibit the enforceability of the permit granted for the Lake Nuasjärvi discharge pipeline. In April 2015, the Northern Finland Regional State Administrative Agency granted an environmental permit for treated waters to be conducted via a discharge pipeline to Lake Nuasjärvi, and subsequently an appeal has been made against the discharge pipeline permit. The discharge pipeline is a prerequisite for enabling the problem of excess waters in the mine area caused by previous activity at the mine to be managed in an environmentally sustainable way. The implementation of the arrangement and the resumption of mining activity in a new mining company additionally requires that various contractual arrangements and necessary regulatory approvals are secured.

No binding private funding has so far been confirmed for the Talvivaara arrangement

The Ministry of Employment and the Economy, Audley Capital Advisors LLP (“Audley”) and the bankruptcy estate of the Talvivaara mine announced in March 2015 a conditional agreement made with Audley to acquire the operations of Talvivaara Sotkamo Oy from the company’s bankruptcy estate. In the same context, Terrafame had made an investment agreement with Audley. The objective has been to continue the operations of the Talvivaara mine profitably and on a long-term basis by a new mining company to be founded through the arrangement.

On the completion of the arrangement in accordance with the agreement, an Audley-led investor consortium would own 85% of the new mining company and Terrafame 15%.

In March, it was announced that the implementation of the arrangement and the resumption of mining in a new mining company still requires, among other things, that the necessary regulatory approvals and binding funding to be secured. Despite the active and extensive efforts of the Ministry of Employment and the Economy and Audley to complete the Talvivaara arrangement, it has not been possible to secure binding funding for the arrangement.

“Obtaining binding funding has so far proved remarkably difficult for a variety of reasons, which also include the difficult market situation in the mining sector. It is apparent that the Talvivaara mining business can be revitalised and placed on a long-term financially sustainable footing. Despite this, it has not been possible to secure private financing,” explains Rehn.

Supplementary budget proposal also provides for the possible orderly closure of the mine

If the conditions for a commercial solution are not be fulfilled, the Government will have no possibility of ensuring the continuation of mining activity at Talvivaara. The supplementary budget proposal therefore also provides for the fact that the mine would have to be closed in an orderly manner at the State’s expense.

“Closing the mine is a last resort option, which we must, however, prepare for at this stage. Closure measures would relate in practice to the management of environmental risks at the mine. The orderly closure of the mine would take several years and the direct costs of the active closure process would be an estimated EUR 300 million. The EUR 112 million now proposed in the supplementary budget proposal is only partially sufficient for this,” says Rehn.

“There have been major problems associated with the mine’s activities, and gathering funding for a new mining company has proved to be difficult. The ore deposit, however, is significant, over one billion euros has been invested in the area of the mine, and the economic importance of the mine during its life cycle can be considered to be substantial. Taking the overall interests of the State into account, we still consider the best option to be that mining operations should be continued at Talvivaara, and that we should also actively pursue this,” concludes Minister Rehn.

For further information, please contact: Markku Rajala, Special Adviser to the Minister of Economic Affairs, tel. +358 50 345 8490, Director General Petri Peltonen, tel. +358 50 626 63 and Commercial Counsellor Janne Känkänen, tel. +358 295 064 200, Ministry of Employment and the Economy