Talvivaara mining company (OMX: TLV1V, LSE:TALV) had become a trendy stock among Finnish retail investors. The riches that were to be uncovered from eastern wilderness were to bring prosperity for all. Even the family of former Minister of Environment kept buying in heavily. While the hype was continuing, clouds began forming in the horizon. The world economy started showing signs of a slowdown after a brief monetary easing induced pickup, which had provided a short boon for raw material companies.
Raw material prices started to soften going into the summer, showing they had gone too far too fast. As an example, after topping above 13 US Dollars, the spot price of a nickel pound has been testing 8$ level as of late, closing below that just the other day. (LME Nickel price USD/tonne is down from early 2011 top of 29000 to 18000), constituting a near 40% fall. While inventories are down, a production surplus is predicted going forward.
Talvivaara has constantly missed its production targets. While the misses were very material and were dropped on investors like a bomb on reporting date, good reasons were always found to restore confidence and hope for better days to come remained. The proof of the long term targets being attainable is yet to come and more cautious investors have thus stayed away. With the nickel price coming down, Talvivaara needs to reach higher production levels, even if it is, as has been argued, profitable at lower nickel prices than many of its competitors. Write-downs from previously balance sheet activated yet thus far underperforming heaps 1 and 2 remain possible.
Before the third quarter results, Talvivaara slashed its full-year nickel production guidance citing problems with hydrogen sulphide generators and due to planned “optimization” of operations in response to tough market conditions. Founder and CEO Pekka Perä will step away from day-to-day operations once a successor has been found. This should not be a big surprise, given that he has always maintained he intends to stay as CEO only until ramp-up is done, but the timing does pose some questions.
Talvivaara entered a Concentrate Streaming Agreement for zinc with Nyrstar NV in early 2010. This came with a large upfront payment and effectively forces Talvivaara to reach a stable and high level zinc production within the next 5 years or so or run the risk of massive damages claims. Both risk and upside in regards to the price of zinc are mitigated by this agreement.
The environmental issues have however proven to be the main cause for concern. There have been conflicting reports in the media within the past couple of weeks. Talvivaara rebuffed the news that authorities were considering temporary close-down of the mine. Current Minister of Environment Ville Niinistö told YLE that the company needs to act quickly and that the law allows for the mine to be closed if permanent damage is caused. The credibility of his comments was somewhat lessened when he mixed up sulphate and phosphate, an error that was later rectified by the public.
Kainuu’s Centre for Economic Development, Transport and the Environment (ELY Centre) did not give upper bounds for sulphate, sodium and manganese levels in waste water, when Talvivaara applied for and received an environmental permit in 2006-2007. Ely Centre explains this obvious error stemming from the fact, that Talvivaara’s own estimates for sulphate, sodium and manganese effluents were so small, that no damage for the environment was foreseen. The environmental permit has an upper limit for nickel, zinc and copper levels in waste water. The actual levels of sulphate, sodium and manganese have been higher than estimates by massive amounts but have supposedly come down somewhat in 2011.
The waste water eventually ends up in Vuoksi and Oulujoki drainage systems but at that point should not pose a problem. Several small lakes in the vicinity of the mine have turned salty. Local police has started an investigation on whether Talvivaara is in breach of the environmental permit; some newspapers jumped the gun and already concluded this to mean suspected environmental crime. Talvivaara says it is committed to further investments and improvements to lessen emissions and is of the opinion that no crimes have been committed.
Talvivaara held its capital markets day today in London. The company says that production remains on track for 16 000 tonnes of nickel for 2011 and the company is guiding 25 000 – 35 000 tonnes for 2012. Primaty heap section number 1 and secondary heap have now come into production. The zinc guidance is for 50 000 – 60 000 tonnes in 2012, which would be a decent result if achieved.
In other news:
Talvivaara withdrew its application for annual production increase to 50 000 tonnes, planning to apply later for an even larger increase.
Talvivaara has been seeking permits for the off-take of uranium, a by-product at the mine. This has dealt another hit for the company’s image. Cameco Corporation has a take-off agreement with Talvivaara and will reimburse up to 60 million USD of construction costs of the uranium extraction circuit, should it be built.
A group of hackers is threatening to target Talvivaara.
Talvivaara’s liquidity and debt situation may prove problematic. a 225 million convertible bond matures in 2015.
Briting mining giant Anglo American has made a major nickel (and copper) discovery in Sodankylä.
An insider bought stocks last week.
Talvivaara’s CEO Pekka Perä told newspaper Savon Sanomat today that if it decides to build a nickel smelting plant, it may build it in the Middle East if the working environment for the company in Finland continues to weaken.
The company stock price is at an all time low.
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