Talvivaara production level and Q2 result warning arrives

Talvivaara Mining company (OMXH: TLV1V, LON: TALV) has a long track record of too optimistic production guidances. New CEO Harri Natunen aims to change that culture. Second quarter nickel production of 3 194 tonnes and zinc production of 6 686 tonnes released this morning means that it is unlikely that previous guidance for annual production level in 2012 will be reached. The company says it will give an updated guidance in connection with Q2 interim results on 16th of August. Previously the company had only nudged earlier guidance of 25 000 – 30 000 tonnes of nickel down by saying the annual production is probably closer to the lower end of the range.

Second quarter production was impacted by dilution of leach solutions due to spring flooding and excessive rain plus a scheduled stoppage. The work-related death in April also led to a stoppage in April. After restart in late April, production came in at 1 477 tonnes of nickel in May and 1 519 tonnes in June with 100% plant availability. April production had been a mere 198 tonnes, raising question why this update is given only now. Even if the current level was sustained for the entire year, we would be nowhere near the guidance. The company estimates that the excessive water level related dilution is 25-30%

Talvivaara also hinted it will no longer be aiming to make quick production level increases and admits that ramp-up is still in progress. The new process is dubbed to be more sustainable production approach aimed at lessening the amount of various problems leading to production halts. More investments will be made to lessen the effect of rainfall and floods. The current estimate is that a “substantial production increase over the last years output of just over 16 000 tonnes of nickel and a sustainable production level amounting to 25 000-30 000 tonnes per annum can be achieved for the remainder of the year.

The company also warned that low nickel prices will affect second quarter financial result. An inventory build-up at the mine site due to an annual maintenance stoppage with the off-taker Norilsk Nickel Harjavalta will further weaken the result. The company expects this will reverse cource in Q3. On this update, the recent gains by the stock are in jeopardy today.