Tough times for Talvivaara as production suffers following leak

Shares in mining group Talvivaara have dropped after it admitted the leakage at the gypsum pond has resulted in a reduction to its production targets.

As such the company now expects fourth-quarter production to reach 2,500 tonnes of nickel, compared to expectations of more than 4,030t, and full-year production of 13,00t, compared to original expectations of 17,000t.

Production had been temporarily suspended between November 4th and 21st following the leak at its Sotkamo nickel mine.

The firm has yet to announce its nickel production guidance for the coming year, and expects to do so in early 2013. It said that key drivers for the production level include the near term development in the water balance, the timing of re-starting ore production and the effectiveness of the measures being taken to reverse the recent effects of excess water and insufficient aeration.

"Whilst the full impact of these factors will only become clear over the course of the coming year, the company anticipates to be in a position to adequately estimate their effect during the first quarter. Furthermore, Talvivaara continues to believe that the existing, over 55,000t nickel inventory in the heaps will provide sufficient supply of metals for a reasonable production ramp-up in 2013 despite the temporary suspension of ore production," the company said.

The group added that since the restart of the mine, operations at the plant have ramped up according to plan, and the facility has returned to the stable utilization rates achieved before the suspension. Solution flow rates at the plant are now close to 1,400 m3/h and ramp-up to around 1,600 m3/h is anticipated over the coming weeks, it said.

The company has also warned investors that it now expects a three to four month delay to the decision on the environmental permit for the uranium recovery circuit, which is currently undergoing construction. The permit was originally expected in late January or February, but is now expected in May.

The process of bioheapleaching has also been problematic for the company, having suffered from the historically heavy rainfall experienced in the Kainuu region throughout the spring, summer and autumn. Nickel grades in solution pumped to metals recovery have declined from slightly below 2.0g per litre at the start of the year to 1.4-1.5 g/l currently.

The company 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 and consequently multiple changes are being implemented.

Furthermore, ore mining and crushing operations, which were temporarily discontinued from the beginning of September, are now expected to re-start in mid-2013, compared to the original target of the end of 2012.

In a statement, the group said: "Talvivaara anticipates continuing to realize significant cost savings as a result of the temporarily suspended ore production. Given the recent disruptions in the company's metals production, additional costs incurred in stemming the gypsum pond leakage and minimizing its environmental impact as well as the prevailing weakness in the nickel price, Talvivaara considers systematic cost savings to be one of its key targets in the near term.

"In the medium term, Talvivaara will target a nearly closed circuit water circulation system, reducing the risk of weather conditions impacting the company's operations or environmental safety.

"In order to facilitate an efficient and sustainable solution to the water balance issues, Talvivaara has established a temporary special organisation focused on the subject. The special organization is headed by Chief Mining Officer Jari Voutilainen, reporting to CEO Pekka Per."

The share price fell 6.09% to 93.35p by 09:50.

NR