Talvivaara Mining Company (OMX: TLV1V, LSE:TALV) has developed a track record of pushing expectations to the moon and then not living up to them in an interim report. This trend continued today and the guidance sets up “nicely” for another such happening later on. Talvivaara was guiding for 22,000-28,000 tons of nickel production in 2011 and now says the production will be closer to the lower bound of the range.
In H1 the nickel production was 8,166t (3,951 in Q2). The company says that two production lines are now in operation, Q2 production was basically from one production line; thus without further problems it would be possible to reach the lower bound. There is however another maintenance stoppage scheduled for Q4.
Talvivaara needs the money that is to come out from the sale of inventories to prevent a tight liquidity situation. Talvivaara has long-term sales contracts and maintenance stoppage at Norilsk Nickel Harjavalta in April-May means that there is upwards of 1500 tonnes more nickel inventories held currently.
The price that Talvivaara gets paid for the nickel is determined couple months after delivery and could be somewhere around 75% of the spot price. The current estimate for the value of the extra inventory held is around 20 million Euros. Q2 deliveries of cobalt to Norilsk Nickel were 64 tonnes and zinc deliveries to Nyrstar 6,682 tonnes.
Talvivaara says that nickel and zinc price declines have been driven by speculative trading but that prolonged concern may also show on the fundamental side. LME nickel stocks are at their lowest levels since 2009. The company feels that despite the downside risk, long term fundamentals would appear to support the nickel price at around USD 20,000 per tonne
Bioheapleaching appears to be working better for heap sections 3 and 4 and the average nickel grades in solution pumped to metals recovery increased from 2.3 g/l in April to 3.0 g/l in June. Problems with heap sections 1 and 2 have been considerable. Secondary leaching ’progressed well’ but the heap size is currently insufficient to pump the solution into metals recovery.
Rumours on the environmental effects have been running wild. CEO Pekka Perä says that the company is placing continued emphasis on mitigation of odour, dust and water emissions. Particularly the emissions to water have been and will be under official scrutiny. The regulatory demands are set to tighten further and this should mean that Talvivaara needs to make considerable investments towards that end. The stock was down 6.5% at market close.
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