Basic information about the Group

Terrafame Group Ltd. is a mining and minerals group. The Group operates internationally and is engaged in the exploration, recovery and excavation of ores as well as other mining and quarrying operations, the purchase and sale of mining rights and any other business based on or related to knowledge acquired in these areas or otherwise suitable for the aforementioned areas. The Group comprises the parent company Terrafame Group Ltd. (business ID 2674050-9), its wholly-owned subsidiary Terrafame Ltd. (business ID 2695013-5) and Winttal Oy (Business ID 2723959-9).

The parent company's domicile is Helsinki and its visiting address is Aleksanterinkatu 17, 00100 Helsinki, Finland. The Group's subsidiary Terrafame Ltd. was registered in the Trade Register on 5 June 2015 and its address is Talvivaarantie 66, 88120 Tuhkakylä, Finland. Winttal Oy was registered on 11 November 2015 and its operations were discontinued on 15 December 2016.

Terrafame Group Ltd.'s Board of Directors approved these financial statements in its meeting on 29 March 2017. According to the Limited Liability Companies Act of Finland, shareholders may approve or reject the financial statements in the Annual General Meeting held after their publication. The General Meeting may also decide to amend the financial statements. 

Copies of the consolidated financial statements are available at Terrafame Group Ltd.'s office, and they can be viewed on the Company's website at www.terrafamegroup.com.

ACCOUNTING POLICIES FOR CONSOLIDATED FINANCIAL STATEMENTS

Basis of preparation

The consolidated financial statements of Terrafame Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as well as the IAS and IFRS standards and SIC and IFRIC interpretations effective at the date of closure of the accounts, 31 December 2016. The International Financial Reporting Standards refer to standards and their interpretations approved for adoption within the EU in accordance with the procedure enacted in EU regulation (EC) 1606/2002, included in the Finnish Accounting Act and regulations based on it. The notes to the parent company's financial statements 
also comply with Finnish accounting and corporate legislation. 

The consolidated financial statements have been prepared on a historical cost basis. The assets, liabilities and obligations acquired in a business transaction have been valued at fair value on the acquisition date. 

The preparation of financial statements under IFRS means that Group management must make certain estimates and judgements concerning the application of the accounting principles. Information about such considerations made by the management when applying the corporate accounting principles with the greatest influence on the figures presented in the financial statements are explained under the item ‘Accounting policies requiring consideration by management and crucial factors of uncertainty associated with estimates’. 

Operational continuity (going concern)

The financial statements for 1 January–31 December 2016 were prepared on a going concern basis, assuming that the financial position of Terrafame Group Ltd. and its subsidiaries can be secured and their business operations will continue for the foreseeable future.

The possibilities for this are considered good since the ramp-up of Terrafame Ltd.'s mine has proceeded according to plan and the main objectives for 2016 were achieved. Terrafame Ltd. drew up a prudent business plan and the company has great potential to improve the cost-effectiveness of its processes as well as optimise its process yields and product quality.

During the financial year, Terrafame Group Ltd. and Terrafame Ltd. have, in order to secure the required funding, prepared ownership and financing arrangements for finishing the ramp-up of Terrafame Ltd.'s production. A term sheet on the matter was signed on 15 December 2016. In connection with the financing arrangement currently under preparation and the continuation of mining activities, the state-owner reserved EUR 100 million in the 2017 budget to be used for the capitalisation of Terrafame Group Ltd. 

The ownership and financing arrangements in accordance with the preliminary agreement were finalised in early 2017, allowing the final contracts with Trafigura Ventures V.B.V. company and Galena Private Equity Resources Investment 2 L.P. fund – which both belong to Trafigura Group – to be signed on 2 March 2017. The arrangements were executed on 10 February 2017. Sampo plc and Terrafame Group Ltd. are acting as co-investors in these arrangements. The financing arrangement totals EUR 250 million. As a result of the financing arrangement, Terrafame Ltd. has the funding necessary to complete the ramp-up of production as well as achieve positive cash flow.

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group owns more than half of the voting rights or otherwise has a controlling interest. The existence of potential voting rights is also considered when assessing the existence of control in the case that the instruments entitling to potential control are currently exercisable. Control refers to the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.

Acquired subsidiaries are consolidated from the date on which the Group gains control. The consolidation ends on the date on which control ceases.

Intra-group transactions, balances and unrealised gains on intra-group transactions are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset item transferred.

Translation of items denominated in foreign currencies

Figures in the consolidated financial statements are shown in euros, the euro being the functional and presentation currency of the parent company, Terrafame Group Ltd.

Transactions in foreign currencies are entered in euros at the rates prevailing at the transaction date or average rates provided by central banks. Monetary foreign currency items are translated into euros using the rates prevailing at the balance sheet date. Foreign exchange gains and losses related to business operations are included in the corresponding items of net sales, operating expenses or financial income and expenses. Hedge accounting has not been applied.

Operating profit

IAS 1 Presentation of Financial Statements does not define the concept of operating profit. The Group has defined it as follows: an operating profit is a net amount derived from net sales plus other operating income, fewer purchase expenses from which change in finished goods inventory and work in progress is subtracted, adjusted for expenses from production for own use, fewer employee benefit expenses, depreciation, amortization and any impairment losses and other operating expenses. All other items in the income statement are shown below the operating profit. Exchange rate differences are included in the operating profit if they arise from items related to operations with third parties. Otherwise they are recognised in financial items.

Classification of current and non-current assets and liabilities

An asset or liability is classified as a current asset or liability when it is expected to be realised during the normal operating cycle or within 12 months of the balance sheet date, or when it is classified as an asset or liability recognised at fair value through profit or loss. Liquid assets are classified as current assets. All other assets and liabilities are classified as non-current assets and liabilities.

Revenue recognition

Revenue is recognised from a sale when evidence of an arrangement exists, the title has been transferred to the customer, the price is determinable and collection of the sales price is reasonably assured. Revenue is recognised net of treatment charges, foreign exchange gains and losses resulting from the settlement and any applicable sales taxes. Most sales are priced in US dollars, and revenue recognition is affected by the terms of delivery used, among other things.

A large proportion of the company's production is sold under long-term contracts, but sales revenue is only recognised on individual sales when persuasive evidence exists that all of the following criteria are met:

  • all material risks and rewards of ownership have been transferred to the buyer;
  • there is no continuing managerial involvement to the degree usually associated with ownership or effective control over goods sold;
  • the amount of revenue can be measured reliably;
  • the costs incurred or to be incurred in respect of the sale can be measured reliably; and
  • the flow of future economic benefits is probable.

Nickel and cobalt products are “provisionally priced”, i.e. the sales price is subject to final adjustment at the end of a quotational period. The quotational period is approximately three months, and the final sales price is determined based on the average market price of the second month after delivery. The provisional invoice accounts for 90% of the delivered volume, while the final invoice accounts for the remaining 10% of the relevant delivery and the final sales price adjustment.

The principal risks associated with recognition of sales on a provisional basis include metal price fluctuations between the date initially recorded and the date of final settlement. If a significant decline in metal prices occurs between the provisional pricing date and the final settlement date, it is reasonably possible that the Group could be required to return a portion of the sales proceeds received based on the provisional invoice.

For this purpose, the selling price can be reasonably estimated by using forward prices from an active and freely traded commodity market 
such as the London Metals Exchange (“LME”) or other relevant market information. The marking to market of provisionally priced sales contracts is recorded as an adjustment to sales revenue. For changes in metal quantities upon receipt of new information and assay, also the provisional sales quantities are adjusted.

Pension obligations

The Group companies have pension schemes in accordance with the local conditions and practices. The schemes are generally funded through payments to insurance companies. Currently all pension schemes are defined as contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions to a separate entity. The Company has no legal or constructive obligations to pay further contributions if the entity does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Under defined contribution plans the payments are accounted for as an expense for the period for which the payment is made.

Leases (accounting by lessee)

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. 

The Group had no finance leases on 31 December 2016.

Impairments

The Group assesses at each balance sheet date whether there is an indication that an asset may be impaired. If any such indication exists, the asset's recoverable amount is estimated.

The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The value in use refers to the estimated future net cash flows obtainable from the asset or cash-generating unit, discounted to their current value. The value in use is forecast on the basis of circumstances and conditions prevailing at the time of testing. The discount rate takes into account the time value of money as well as the special risks involved for each asset, different industry-specific capital structures in different lines of business, and the investors’ return expectations for similar investments. An impairment loss is recorded when the carrying amount of an asset is greater than its recoverable amount. If the impairment loss is allocable to a cash-flow-generating unit, it is allocated first to reduce the goodwill of the unit and subsequently to reduce other assets of the unit.

An impairment loss is reversed if a change has occurred in circumstances and the recoverable amount of the asset has changed since the impairment loss was recognised.

Borrowing costs

Borrowing costs are recognised as an expense in the period during which they are incurred. 

Income taxes

Tax expenses on the income statement consist of the tax based on taxable income for the year and deferred taxes. Taxes based on taxable income for the year are calculated using the applicable tax rates. Taxes are adjusted with any taxes arising from previous years. Deferred taxes are calculated for all temporary differences between the carrying amount and taxable amount.

Deferred taxes are calculated using the tax rates set at the balance sheet date. Deferred tax assets arising from taxable losses carried forward are recognised up to the amount for which there is likely to be taxable income in the future, and against which the temporary difference can be used.

Property, plant and equipment

Property, plant and equipment, which on 31 December 2016 include, among others, buildings and infrastructure, machinery and equipment used in mining operations, laboratory equipment, vehicles, roads, and structures for environmental protection, are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition, construction or production of the item.

Where parts of an item of property, plant or equipment have different useful lives, they are accounted for as separate items of property, plant or equipment.

In open pit mining operations, it is necessary to remove overburden to access ore from which minerals can economically be extracted. The process of mining overburden and waste materials is referred to as stripping. Costs arising from the removal of overburden are recorded as an expense as they are incurred.

Work in progress and land are not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

 

Roads   25 years
Buildings and structures   10-40 years
Leaching heap foundations   10-15 years
Machinery and equipment   4-25 years
Furniture, fixtures and fittings   5-10 years
Vehicles   5-10 years
Structures for environmental protection   25 years

Useful lives of assets, depreciation methods and any residual values are re-assessed on each reporting day. The reassessment is based on the company's estimates of ore reserves, mineral resources, production capacity and other relevant factors. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other operating income or expenses, respectively, in the income statement.

Intangible assets

 

Other intangible assets

Other intangible assets are recorded at cost if the cost is reliably measurable and the future economic benefits for the Group are probable. Other intangible assets mainly consist of IT applications supporting the Group's business operations, which are amortised over 3–5 years. 

Biological assets

Biological assets, i.e. living trees, are measured on initial recognition and at each balance sheet date at their fair value less estimated point-of-sale costs. The fair values of biological assets other than young seedlings are based on quoted prices in active markets for biological assets. Biological assets that are physically attached to land are recognised and measured at their fair value separately from the land. 

The fair value of harvest, measured as its value at the point-of sale, is deducted from the fair value of the biological assets. The estimated growth of trees is recognised as gains in the fair value of the biological assets. The changes in the fair value of biological assets are included in the operating profit.

Research and development expenditure

Research expenditure is recognised as an expense as incurred.

Inventories

The Group classifies its inventories into three groups: raw materials and consumables, work in progress, and finished products.

Raw materials and consumables are valued at the average acquisition cost of the goods in stock, which does not include freight or shipping costs.  An obsolete inventory provision has been made for slow-moving items. The provision for slow-moving items in Terrafame Ltd.’s balance sheet of 31 December 2016 as well as in the consolidated balance sheet was EUR 6.0 million.

Costs that are incurred in or benefit the production process are accumulated as work in progress and finished products. Work in progress represents ore that has been excavated and crushed and is under leaching, as well as metals that are under leaching or in the precipitation and filtering process. Finished products comprise a mixed nickel-cobalt sulphide, zinc sulphide and copper sulphide. The cost of work in progress and finished products include the fixed and variable costs of production and maintenance that supports production, which are based on the refining process normal operating capacity and the related production costs. The acquisition cost excludes borrowing costs.

Normal operating capacity is determined with consideration to the production facilities' actual capacity – particularly during the ramp-up phase – and potential capacity, and it reflects the achieved and forecast production at any given time. 

Work in progress (metals in the processing chain) is valued at average production cost, but no more than the metal's net sales price, which equals the net sales price at the date of closure of the accounts less the average production costs incurred in turning work in progress into ready-for-sale products.

The valuation of work in progress is based on the estimated quantities of metal in the production process. The quantities of metal are continuously monitored throughout the production process, which consists of four main phases: mining, crushing and stacking, bioheapleaching and metals recovery. The mining method selected for use at Terrafame is open pit mining. The mined ore is crushed in four stages, followed by agglomeration in the circulating bioleaching solution in order to consolidate the fine particles with coarser ore particles. After the agglomeration, the ore is conveyed and stacked on the primary heap pad for bioheapleaching. Later, the ore is conveyed from the primary heap pad and re-stacked onto the secondary heap pad for the second phase of bioheapleaching. The circulating leach solution is continuously led to the metals production plant, where nickel, zinc, cobalt and copper are precipitated from the pregnant leach solution as saleable metal sulphides.

The recoverable quantities of nickel, zinc, copper and cobalt are determined on the basis of the estimated grade of ore based on geological studies, the metals recovery percentage based on best present knowledge of the bioheapleaching process, and the estimated metals recovery percentage of the metals production plant.

Finished products (saleable metals) are valued at average production cost or at a value that does not exceed the net sales price at the date of closure of the accounts.

 Net sales price refers to the estimated sales price obtained in the ordinary course of business, less applicable variable 
selling expenses.

Financial assets

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available for sale financial assets. The Group classifies its financial assets at initial recognition. All financial liabilities are recognized initially at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are 
directly attributable to the acquisition.

All purchases and sales of financial assets are recognised on the transaction date, which is the date on which the Group commits to purchasing or selling the financial instrument. Financial assets are derecognised from the balance sheet when the Group has lost the contractual right to the cash flows or when it has transferred a significant part of the risks and yield outside the Group.

Financial assets at fair value through profit and loss are assets held for trading or financial assets designated upon initial recognition at fair value through profit and loss. Derivatives are also classified as 'at fair value through profit or loss'. The Company does not apply hedge accounting.

Available-for-sale financial assets are financial assets that are either designated in this category or not classified in any of the other categories. These are included in non-current assets, unless they are intended to be held less than 12 months from the end of the reporting period, in which case they are included in current assets.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market, and which the Group does not hold for trading or designate on initial recognition as available for sale. They are included on the balance sheet under current or non-current assets as determined by their nature, under the latter if maturing in more than 12 months. 

Financial assets at fair value through profit or loss are recognised in the balance sheet, and changes in fair value are recognised in financial income or expenses. Fair value changes on available-for-sale financial assets are recorded in the statement of other comprehensive income and reported as fair value reserve within equity, adjusted with the after-tax effect. Accumulated changes in fair value are transferred from equity to the income statement when the investment is sold or if it is subjected to impairment and an impairment loss must be recognised on the investment. Loans and receivables are carried at amortised cost using the effective interest method.

At the date of closure of the accounts, 31 December 2016, the Group had no investments or derivatives. 

Cash and cash equivalents

The Group's cash and cash equivalents consist of cash at bank and in hand.

Trade receivables

Trade receivables are amounts due from customers for products sold in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. 

Trade receivables are recognised initially at fair value and are subsequently measured at amortised cost reduced by any provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts. Any impairment is recognised in the income statement within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement.

Financial liabilities

Liabilities are classified as current and non-current, and include both interest-bearing and interest-free liabilities. Interest-bearing liabilities are liabilities that either include a contractual interest component, or are discounted to reflect the fair value of the liability.

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, or loans and borrowings. The Group classifies its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value, and in the case of loans and borrowings, plus directly attributable transaction costs. The Group’s financial liabilities include trade and other payables.

Provisions, contingent liabilities and contingent assets

Provisions are recognised when the company has a present legal or constructive obligation as a result of past events, and when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Rehabilitation provision for mine closure and environmental clean-up costs

A rehabilitation provision for mine closure costs is made with respect to the estimated future costs of closure and restoration, and for environmental restoration and rehabilitation to the condition required by the environmental permits granted for mining operations.

Prevention of the threat of environmental pollution entails environmental and landscaping obligations. After the mining operations have ended, any machinery and equipment, chemicals, fuels and waste involving the risk of environmental pollution must be removed from the area. This will be carried out as part of the normal mining operations. In addition, open pits must be restored to the condition required by public safety.

The majority of the estimated restoration costs arises from the closure of waste rock dumps and primary and secondary leaching areas, the treatment and clean-up of primary and secondary leaching solution channels, the covering and landscaping of gypsum ponds, the clean-up of waters and precipitates caused by the gypsum pond leak of 2012, the treatment of rock drainage, the fencing of open pits and the ex post supervision of the mine area.

The mine closure plan is based on the covering of areas with water- and oxygen-impermeable material and long-term aftercare. Environmental monitoring of the mine is assumed to continue for 30 years after the closure of the mine.

Restoration costs have been estimated in accordance with the cost level at the date of closure of the accounts. The costs of restoration and rehabilitation have been calculated based on the cost level on the balance sheet closing date. A rehabilitation provision of EUR 162.1 million was recorded in Terrafame Ltd.’s balance sheet of 31 December 2016 as well as in the consolidated balance sheet.

Accounting policies requiring consideration by management and crucial factors of uncertainty associated with estimates

Estimates and assumptions regarding the future have to be made during the preparation of the financial statements, and the outcome may differ from the estimates and assumptions. Furthermore, the application of accounting policies requires consideration. 

The estimates made when preparing the financial statements are based on the management's best knowledge at the balance sheet date. The estimates are based on prior experience, as well as future assumptions that are considered to be the most likely on the balance sheet date with regard to issues such as the expected development of the Group’s economic operating environment in terms of sales and cost levels. The Group monitors changes on a regular basis using both internal and external sources of information, and any changes to these estimates and assumptions are entered in the accounts for the period in which the estimate or assumption is adjusted and for all periods thereafter.

Tangible and intangible assets

Terrafame Group's management is required to use its consideration when determining the capitalisation bases and useful lives of tangible and intangible assets, which affect the consolidated balance sheet and the amount of depreciation. Similarly, management is required to use its discretion in determining the useful lives of intangible assets identified in accordance with IFRS 3, and in determining the amortisation period. This affects the financial result for the period through depreciation and change in deferred taxes.

For tangible assets, comparisons have been made of the market prices of similar assets, and the depreciation of the acquired assets due to aging, wear and other similar factors has been estimated. The fair value measurement of intangible assets is based on estimates of the future cash flows associated with the assets. Management considers the assumptions and estimates to be sufficiently accurate to provide a basis for estimating the fair value. Furthermore, the Group reviews any indication of impairment loss of tangible and intangible assets at each closing day of the financial statements.

Valuation of mineral resources and ore reserves

In the Group’s mining operations, estimates have to be applied in recognising mineral resources acquired in business combinations as assets on the consolidated balance sheet. In the recognition and measurement of mineral resources and ore reserves, the Group utilises available third party analyses of the quantities, mineral content, estimated production costs and exploitation potential of the resource.

The reliability of the evaluation and calculation basis for mineral resources and ore reserves is also a key consideration. In the mining and minerals business, mineral resources and ore reserves are commonly classified into categories such as ‘proven’ and ‘probable’ ore reserves, and ‘measured’ and ‘indicated’ mineral resources. The measurement of ore reserves is based on estimated market prices and estimated production costs. The measurement of mineral resources is based on the identification of classification and calculation bases enabling their conversion into economically viable actual ore reserves. As a result, the company's management is required to use its consideration in applying valuation and recognition principles to ore reserves and mineral resources. Due to the low global market prices of metals, production costs are higher than selling prices. Therefore, mineral and ore reserves have no value on the balance sheet of 31 December 2016.

Rehabilitation provisions

The Group assesses the rehabilitation liabilities associated with its mines and production facilities annually. The amount of provision reflects the management's best estimate of the rehabilitation costs. In determining the amount of provision, the Group has listed matters that it will rehabilitate and/or restore to the condition required by the licence terms in accordance with the nature of its operations and the official permit conditions. The Group estimates that it will take rehabilitation measures in connection with its mining operations or, at the latest, in connection with mine closure. These measures are estimated to take a few years after the mine closure.

On the balance sheet date, the Group has estimated the extent and unit cost of the various matters requiring rehabilitation and calculated the rehabilitation provision accordingly. In estimating the extent and unit cost of the various matters, the Group has used its best in-house experts in the matters in question.

In determining the fair value of the provisions, assumptions and estimates are made in relation to discount rates, the expected cost to rehabilitate the area and remove or cover the contaminated soil from the site, the expected timing of those costs, and whether the obligations stem from past activity. These uncertainties may cause the actual rehabilitation costs to differ from the provision which has been made.

New and amended standards and interpretations to be applied in future

In 2016, the Group has adopted the following standards and interpretations whose application was not yet mandatory in the financial statements of 2015.

Amendments to IAS 1 Presentation of Financial Statements. The amendments clarify guidance in applying the concept of materiality and presenting information in financial statements and notes. The change has no material impact on the consolidated financial statements.

Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets. Revenue-based depreciation methods are not applicable to property, plant and equipment, and only rarely to intangible assets. The changes had no material impact on the consolidated financial statements. 

Amendment to IFRS 11 Joint Arrangements. The amendment requires the use of business combination accounting for the acquisition of an interest 
in a joint operation that constitutes a business. The change has no material impact on the consolidated financial statements. 

Annual Improvements to IFRSs 2012–2014. The changes have no material impact on the consolidated financial statements.

Changes that will enter into force later:

The Group will adopt the following IASB standards and standard amendments later than for the financial year beginning on 1 January 2016, provided that the EU will approve them.

IFRS 9 Financial Instruments (effective from 1 January 2018). IFRS 9 will replace the current standard IAS 39 Financial Instruments: Recognition and Measurement. The standard contains new provisions relating to the classification of financial instruments, valuation, impairment and hedge accounting. The Group is currently evaluating the effects of the changes.

IFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018). The standard includes a new five-step model for the recognition of sales revenue. Revenue is recognised when control of a good or service transfers to a customer. Disclosure requirements will also expand significantly. The Group is currently evaluating the effects of these changes.

IFRS 16 Leases (effective from 1 January 2019). The draft standard defines a lease as an agreement whereby the lessor conveys to the lessee in return for a payment or series of payment the right to use an asset for an agreed period of time. Following the new standard, all over-one-year lease obligations will, as a rule, be entered as liabilities in the lessee's balance sheet. The Group estimates that the standard will have an impact on the consolidated financial statements.

Annual Improvements to IFRSs 2014–2016. The changes are not expected to have a material impact on the consolidated financial statements.

   
1.1 Net sales   1/1–31/12/2016 9/2–31/12/2015
Breakdown by sector      
Metal   101,041,812.63 2,523,629.03
Total   101,041,812.63 2,523,629.03
       
Geographical breakdown      
Europe   44,216,591.39 2,523,629.03
Asia   49,853,953.47 0.00
United States   6,395,805.68 0.00
Australia   575,462.10 0.00
Total   101,041,812.63 2,523,629.03
       
Production restart was initiated in August 2015, and      
only small trial lots were delivered to Europe during the financial year that ended on 31 December 2015.      
       
1.2 Employee benefit expenses      
       
Salaries and wages   28,386,614.28 8,171,190.01
Pension costs   5,303,759.72 1,527,078.77
Other social security expenses   1,799,789.04 408,477.86
    35,490,163.04 10,106,746.64
       
The Group's average number of employees during the financial year   629 482
The Group's number of employees at the end of the financial year   649 531
       
1.3 Cost of goods sold      
       
Materials and services      
Raw materials and consumables      
Purchases during the financial year   102,863,407.00 37,148,449.12
Change in inventory   -7,236,696.63 -3,987,082.60
    95,626,710.37 33,161,366.52
External services   67,256,145.99 14,459,129.66
Total   162,882,856.36 47,620,496.18
       
Personnel expenses      
Wages and salaries   27,934,434.97 8,035,241.50
Pension costs   5,234,468.11 1,509,106.04
Other social security expenses   1,784,805.68 404,359.92
Total   34,953,708.76 9,948,707.46
       
Depreciation, amortisation and impairment charges      
Intangible rights   244,455.11 18,040.35
Tangible assets      
Buildings and structures   3,177,136.06 945,247.13
Machinery and equipment   8,073,754.22 1,983,354.33
Other tangible assets   2,486,593.09 784,783.08
Total   13,981,938.48 3,731,424.89
       
Other costs of goods sold   3,968,625.65 23,995,060.66
       
Total   215,787,129.25 85,295,689.19
       
1.4 Other operating income      
       
Revaluation of biological assets   67,267.35 0.00
Insurance claims   208,019.06 0.00
Proceeds from sale of tangible and intangible assets   106,492.48 30,000.00
Refund on the energy tax of fuel oil   196,601.90 0.00
Other fees and compensation, including sales of scrap metal and proceeds from tree felling   346,788.34 0.00
Total other operating income   925,169.13 30,000.00
       
1.5 Administrative expenses   16,634,017.20 9,640,409.77
       
Administrative expenses include the following expenses:      
Salaries and wages   3,880,595.73 1,142,379.49
Wage-related costs   1,231,934.46 0.00
Depreciation and amortisation   166,776.20 43,080.99
External services   5,262,399.56 5,606,401.91
Insurance   2,651,330.33 606,622.37
Experts' fees   467,545.84 494,374.62
Other legal and consulting services   371,130.99 570,780.88
Other expenses      
General administration   991,664.50 281,125.48
Finance and IT   562,919.13 173,999.02
EHSQ, others   357,668.67 161,701.65
HR, others   668,828.09 86,675.07
Communication   89,077.28 21,151.01
Shared   -67,853.58 264,491.61
    16,634,017.20 9,452,784.10
       
Research and development costs      
Total research and development costs recognised as an expense   1,306,072.47 121,125.67
       
       
       
1.6 Auditor's fees - EC      
Auditing   109,293.91 43,200.00
Audit-related services   0.00 0.00
Certificates and statements   0.00 11,300.00
Tax advisory services   0.00 0.00
Other services   38,172.43 12,000.00
    147,466.34 66,500.00
       
       
1.7 Finance income and finance cost      
       
Finance income      
Interest income from other deposits   16,502.30 3,845.02
Foreign exchange gains   0.00 14,744.83
Other finance income   10,188,227.32 0.00
Total finance income   10,204,729.62 18,589.85
       
Finance cost      
Other interest expenses   -209,685.56 -28,717.39
Foreign exchange losses   -425,094.54 -2,531.43
    -634,780.10 -31,248.82
       
Total finance income and finance cost   9,569,949.52 -12,658.97

The finance income includes a finance income of EUR 10,168,100, which derives from the transaction with Talvivaara Mining Company Plc on 30 June 2016 as a short-term receivable was settled.

       
       
1.8 Income tax      
       
Income taxes in the income statement      
Tax based on taxable income for the financial period   0.00 0.00
Taxes from previous periods   0.00 0.00
Tax based on taxable income for the period   0.00 0.00
       
       
Deferred taxes   -13,453.47 0.00
       
Income tax expense   -13,453.47 0.00
       
The Finnish corporate tax rate in the financial year 2016 and the reference year was 20.0%      
       
Deferred tax on the balance sheet   -13,453.47 0.00
       
       
       
1.9 Earnings per share      
       
Basic earnings per share are calculated by dividing the profit attributable to equity holders of the parent      
with the weighted average number of ordinary shares in issue during the year.      
       
Profit/loss for the period attributable to owners of the parent   -127,165,126.83 -93,102,768.85
Weighted average number of shares during the period   308,616 209,100
Basic earnings per share, EUR/share   -412.05 -445.25
       
       
       
1.10 Business acquisitions and divestitures      
       
Acquisitions during the financial year 2016      
       
The Group made no business acquisitions in the financial year 2016.      
       
Acquisitions during the financial year 2015      
       
In August 2015, Terrafame Ltd. acquired the business operations and assets of Talvivaara Sotkamo Ltd. from the bankruptcy estate and will thus continue its mining operations. The rapid start-up of mining operations is also the best way to ensure environmental safety. In connection with the acquisition, a total of 433 employees transferred to Terrafame Ltd. as so-called existing employees. The transaction entered into force on 15 August 2015. A cash payment of EUR 135,001 was made, of which EUR 135,000 was allocated to certain land areas included in the acquisition. Furthermore, Terrafame assumed responsibility for environmental liabilities transferred alongside the object of acquisition in accordance with Finnish legislation. The asset and liability items acquired in connection with the business transfer have been measured at fair value. The deal included tangible assets worth EUR 138,489,897.26.

In the measurement of the fair value of a piece of machinery, its historical cost, estimated economic life and physical condition are taken into account. Tangible assets are depreciated over their estimated useful lives based on management's judgement, taking into account the depreciation principles applied in the Group. A rehabilitation provision of EUR 162,078,025 was made. The provision is based on estimates of future liabilities. The corresponding estimated costs are presented in more detail in Note 1.21.

The deferred tax asset of approximately EUR 32 million arising from the rehabilitation provision has not been recorded in the accounts since its utilisation involves uncertainties.
 
       
ACQUISITION COST CALCULATION OF THE MINING BUSINESS AS PER 15 AUGUST 2015     
Assets      
Tangible assets     138,489,897.26
Intangible assets     109,772.32
Biological assets     5,111,428.01
Inventories     18,501,928.41
Other receivables     1,082,094.65
Cash and cash equivalents     0.00
Total assets     163,295,120.65
       
       
Debts and liabilities      
Deferred tax liabilities     0.00
Other liabilities     1,082,094.65
Provisions     162,078,025.00
Financial liabilities     0.00
Debts and liabilities     163,160,119.65
       
Net assets      
Consideration transferred     135,001.00
Identifiable net assets of the object of acquisition     135,001.00
Profit gained from the acquisition     0.00
       
A total of EUR 494,374.62 in advisory and consulting fees related to the acquisition has been recorded. These costs are included in administrative costs within the consolidated income statement.   
       
Terrafame Ltd. has agreed to pay to Talvivaara Sotkamo Ltd.'s bankruptcy estate a conditional additional consideration if the accumulated EBITDA of the acquired mining operations, determined in accordance with Finnish Accounting Standards, exceeds EUR 200 million during the reference period extending to the end of 2020. Terrafame Ltd. has also agreed to pay additional consideration to the seller during the said reference period in the case of certain M&A situations. The maximum additional consideration is EUR 15 million. The conditional additional consideration has not been recognised because the management finds it unlikely that its payment will materialise.   
       
       
Acquisition of Winttal Oy      
       
On 4 December 2015, Terrafame Group Ltd. acquired the entire share capital of a limited liability company named Winttal Oy from Nyrstar Sales & Marketing AG. Winttal Oy owns and manages receivables from Talvivaara Mining Company Plc whose original creditor was Nyrstar Sales & Marketing AG. The balance sheet value of receivables is EUR 3.8 million and their nominal value is EUR 216.2 million. The acquisition of the entire share capital of Winttal Oy, and the management of the above-mentioned receivables achieved through that acquisition, supports the opportunities of Terrafame Group to negotiate with Talvivaara Mining Company Plc on the acquisition of those asset items owned by the latter which are related to the operations of the Terrafame mine, with the aim of achieving an agreement that will be approved by all parties. After the end of the financial year, a preliminary agreement was signed on the said asset items. As part of the agreement, the afore-mentioned receivables owned by Winttal Oy will be rescheduled.

The acquisition of Winttal Oy has been treated as an acquisition of asset items, not as a business acquisition referred to in IFRS 3 Business Combinations.
  
       
Assets      
Other receivables     3,800,000.00
Cash and cash equivalents     2,500.00
Total assets     3,802,500.00
       
       
Debts and liabilities     0.00
Deferred tax liabilities     0.00
Other liabilities     0.00
Contingencies     0.00
Financial liabilities     0.00
Total liabilities     0.00
       
       
Net assets      
Consideration transferred     3,802,500.00
Identifiable net assets of the object of acquisition     3,802,500.00
Profit/loss gained from the acquisition     0.00
       
The operations of Winttal Oy were discontinued on 15 December 2016, as a result of which the company’s assets and liabilities were transferred to Terrafame Group Ltd. Winttal Oy’s loss of EUR -202.85 for the financial period 1 January 2016–15 December 2016 was consolidated in the consolidated financial statements.  
       
       
1.11 Intangible assets      
  Intangible rights Other long-term
expenditure
Total
       
Acquisition cost 9 Feb. 2015 0.00 0.00 0.00
Increase 184,438.21 19,213.11 203,651.32
Acquisition cost 31 Dec. 2015 184,438.21 19,213.11 203,651.32
       
Accumulated depreciation and write-downs 31 Dec. 2015      
9 Feb. 2015 0.00 0.00 0.00
Depreciation for the year -15,193.96 -2,846.39 -18,040.35
Accumulated depreciation 31 Dec. 2015 -15,193.96 -2,846.39 -18,040.35
       
Carrying amount 31 Dec. 2015 169,244.25 16,366.72 185,610.97
       
Acquisition cost 1 Jan. 2016 184,438.21 19,213.11 203,651.32
Increase 1,652,201.46 0.00 1,652,201.46
Acquisition cost 31 Dec. 2016 1,836,639.67 19,213.11 1,855,852.78
       
Accumulated depreciation and write-downs      
31 Dec. 2016 -15,193.96 -2,846.39 -18,040.35
Depreciation for the year -235,915.95 -8,539.16 -244,455.11
Accumulated depreciation 31 Dec. 2016 -251,109.91 -11,385.55 -262,495.46
       
Carrying amount 31 Dec. 2016 1,585,529.76 7,827.56 1,593,357.32
1.12 Property, plant and equipment      
  Land Buildings Machinery and equipment Other tangible
assets
Advance payments and
acquisitions in progress
Total
Acquisition cost 9 Feb. 2015 0.00 0.00 0.00 0.00 0.00 0.00
Business acquisition 0.00 0.00 0.00 0.00 11,639,822.70 11,639,822.70
Increase 144,285.00 45,728,018.73 42,797,835.19 42,910,542.30 7,770,831.52 139,351,512.74
Transfers between items 0.00 1,871,523.41 2,103,233.04 6,326,044.79 -10,300,801.24 0.00
Acquisition cost 31 Dec. 2015 144,285.00 47,599,542.14 44,901,068.23 49,236,587.09 9,109,852.98 150,991,335.44
             
Accumulated depreciation and write-downs 9 Feb. 2015 0.00 0.00 0.00 0.00 0.00 0.00
Depreciation for the year 0.00 -945,247.13 -1,983,354.33 -784,783.08 0.00 -3,713,384.54
Accumulated depreciation 31 Dec. 2015 0.00 -945,247.13 -1,983,354.33 -784,783.08 0.00 -3,713,384.54
             
Carrying amount 31 Dec. 2015 144,285.00 46,654,295.01 42,917,713.90 48,451,804.01 9,109,852.98 147,277,950.90
             
Acquisition cost 1 Jan. 2016 144,285.00 47,599,542.14 44,901,068.23 49,236,587.09 9,109,852.98 150,991,335.44
Increase 520.00 5,413,951.91 9,563,557.08 0.00 67,786,406.79 82,764,435.78
Decrease 0.00 0.00 -157,674.26 0.00 0.00 -157,674.26
Transfers between items 0.00 465,258.11 23,788,569.48 487,549.24 -24,741,376.83 0.00
Acquisition cost 31 Dec. 2016 144,805.00 53,478,752.16 78,095,520.53 49,724,136.33 52,154,882.94 233,598,096.96
             
Accumulated depreciation and write-downs 1 Jan. 2016 0.00 -945,247.13 -1,983,354.33 -784,783.08 0.00 -3,713,384.54
Accumulated depreciation on decreases and transfers 0.00 0.00 10,023.00 0.00 0.00 10,023.00
Depreciation for the year 0.00 -3,177,136.05 -8,073,754.22 -2,486,593.09 0.00 -13,737,483.36
Accumulated depreciation 31 Dec. 2016 0.00 -4,122,383.18 -10,047,085.55 -3,271,376.17 0.00 -17,440,844.90
             
Carrying amount 31 Dec. 2016 144,805.00 49,356,368.98 68,048,434.98 46,452,760.16 52,154,882.94 216,157,252.06
 
Finance leasing agreements
There are no finance leasing agreements in the financial statements of 31 December 2016 and 31 December 2015.
       
 
 Finance leases
The financial statements of 31 December 2016 and 31 December 2015 include no finance leases.
 
1.13 Biological assets
In connection with the business acquisition, the company became the owner of a mining concession, which includes biological assets (forest).
The forests are managed in accordance with a forest management plan.

Approximately one third of the mining concession area has been taken into production use. As the mining operations continue, more areas will be taken into use and, at the same time, forests will be cleared.

Biological assets have been measured at fair value based on a third-party estimate, less sales-related costs.
Growing stock and seeding stand have been measured at fair value, separately from land. Seeding stands have no value in timber trade since the trees will not be saleable until after 25–30 years.
The value of seeding stands has been taken into account in the value of forests by discounting them at 31 December 2015 (time 25 years, interest rate 5%).
   
Biological assets 31 Dec. 2016  31 Dec. 2015
Value of growing stock 5,061,702.30  5,000,544.77 According to estimates of forest holdings
Value of seeding stands 116,993.05  110,883.24 Present discounted value
  5,178,695.36  5,111,428.01
 
Balance at 9 Feb. 2015       0.00
Business acquisition       5,111,428.00
Sales during the period       -30,378.51
Gains and losses on fair value measurement (due to growth)       0.00
Gains and losses on fair value measurement (due to changes in prices)       30,378.52
Balance at 31 Dec. 2015       5,111,428.01
     
Balance at 1 Jan. 2016       5,111,428.01
Business acquisition       0.00
Sales during the period       0.00
Gains and losses on fair value measurement (due to growth)       0.00
Gains and losses on fair value measurement (due to changes in prices)       67,267.35
Balance at 31 Dec. 2016       5,178,695.36
     
1.14 Deferred assets    

On 31 December 2016, the Group had unrecognised deferred tax assets of approximately EUR 37.0 million, which consisted of the estimated loss for the financial year 2016 (EUR 23.6 million), the confirmed loss for the financial year 2015 (EUR 12.7 million) and deferred appreciations (EUR 0.7 million). The losses will expire in 2025 and 2026. With respect to the rehabilitation provision recorded in connection with the acquisition of the mining business, a deferred tax asset of approximately EUR 32 million has not been recognised. The utilisation of deferred tax assets involves uncertainties. Deferred tax assets have not been recognised in the balance sheet.
     
1.15 Inventories 2016 2015
     
Raw materials and consumables 25,497,419.94 18,260,723.28
Work in progress 50,120,000.00 481,376.00
Finished products 617,585.00 4,525,716.00
  76,235,004.94 23,267,815.28
     
A computational depreciation entry on the value of the raw materials and consumables inventory has been made in accordance with a calculation based on the use of spare parts. The depreciation on obsolete and slow-or zero-moving items was EUR 6.0 million on the balance sheet date of 31 December 2016, and EUR 9.7 million on 31 December 2015.   
     
1.16 Trade receivables and other receivables    
     
Current 2016 2015
     
Trade receivables 15,765,017.00 3,183,593.21
Prepayments and accrued income 2,788,114.26 2,077,242.47
Collateral 212,015.60 207,440.48
Other receivables 8,187,421.95 8,545,622.20
  26,952,568.81 14,013,898.36
     
Aging of trade receivables and items recognised as credit loss 2016 2015
Undue 13,450,056.62 3,183,593.21
Overdue    
Under 30 days 2,302,882.46 0.00
30–60 days 12,077.92 0.00
61–90 days 0.00 0.00
Over 90 days 0.00 0.00
  15,765,017.00 3,183,593.21
     
Recognised as credit loss 0.00 0.00
     
Current receivables by currency, EUR 2016 2015
USD 13,760,602.90 3,233,418.43
EUR 13,191,965.91 10,780,479.93
  26,952,568.81 14,013,898.36
     
Other receivables consist of the following items:  
Loan receivable 0.00 3,800,000.00
Value added tax receivables 8,187,421.95 4,745,622.20
  8,187,421.95 8,545,622.20
     
1.17 Cash and cash equivalents    
  2016 2015
Cash at bank and in hand 50,899,926.66 119,887,712.78
Security deposits 0.00 0.00
  50,899,926.66 119,887,712.78
     
1.18 Notes on shareholders' equity Number of shares Share capital
Share capital    
9 Feb. 2015 100 100,000.00
Share issues 209,000 2,157,500.00
Share capital 31 Dec. 2015 209,100 2,257,500.00
     
Invested unrestricted equity fund    
 The invested unrestricted equity fund comprises other investments in the nature of equity and the subscription price of shares insofar as this is not credited to the share capital on the basis of a specific decision.   
     
9 Feb. 2015 100 90,000.00
Share issues 209,000 206,752,500.00
Invested unrestricted equity fund 31 Dec. 2015 209,100 206,842,500.00
The shares have no nominal value.    
     
Profit/loss for the period   -93,102,768.85
     
Equity 31 Dec. 2015   115,997,231.15
     
Calculation of distributable funds 31 Dec. 2015  
Invested unrestricted equity fund   206,842,500.00
Profit/loss for the period   -93,102,768.85
    113,739,731.15
     
Share capital Number of shares Share capital
1 Jan. 2016 209,100 2,257,500.00
Share issues 182,500 0.00
Share capital 31 Dec. 2016 391,600 2,257,500.00
     
Invested unrestricted equity fund  

The invested unrestricted equity fund comprises other investments in the nature of equity and the subscription price of shares insofar as this is not credited to the share capital on the basis of a specific decision.  

 
1 Jan. 2016 209,100 206,842,500.00
Share issues 182,500 182,500,000.00
Invested unrestricted equity fund 31 Dec. 2016 391,600 389,342,500.00
The shares have no nominal value.    
     
Profit/loss for the period   -127,165,126.83
     
Equity 1 Jan. 2016   115,997,231.15
Equity 31 Dec. 2016   171,332,104.32
     
Calculation of distributable funds 31 Dec. 2016    
Invested unrestricted equity fund   389,342,500.00
Earnings from previous periods   -93,102,768.85
Profit/loss for the period   -127,165,126.83
    169,074,604.32
1.19 Contingent liabilities and other liabilities 2016 2015
     
Amounts payable on rental and leasing agreements  
Not later than 1 year 153,140.18 646,045.96
Later than 1 year and not later than 5 years 23,252.95 6,864.95
Total 176,393.13 652,910.91
     
Other liabilities    
Contractual liabilities transferred in connection with a business acquisition  
Not later than 1 year 3,144,249.36 15,180,762.69
Later than 1 year and not later than 5 years 1,156,306.00 572,378.88
Total 4,300,555.36 15,753,141.58
     
Fixed assets serving as collateral for hire-purchase debt 2,605,208.33 2,986,458.33
Amount of debt    
Not later than 1 year 1,287,951.44 2,246,779.48
Later than 1 year and not later than 5 years 0.00 1,287,712.01
Total 1,287,951.44 3,534,491.49
     
Bank deposits 212,015.60 207,440.48
     
Total 5,976,915.53 20,147,984.46
      
Securities complying with environmental permits        
        Amount of security
Beneficiary   Type of security   Total
Kainuu Centre of Economic Development, Transport and the Environment; securities in accordance with permit condition 101   Credit insurance 31,940,000.00  
    Bank guarantee 2,450,000.00 34,390,000.00
Kainuu Centre of Economic Development, Transport and the Environment; securities in accordance with permit condition 10   Bank guarantee   1,750,000.00
Regional State Administrative Agency for Northern Finland, security in accordance with permit condition 99   Bank guarantee   1,500,000.00
Security in accordance with permit decision no. 52/2013/1   Bank guarantee   1,250,000.00
Security in accordance with permit decision no. 33/07/1   Bank guarantee   1,500,000.00
Security in accordance with permit decision no. 43/2014/2   Bank guarantee   6,000.00
Security in accordance with permit decision no. 43/2015/1   Bank guarantee   260,000.00
Security in accordance with permit decision no. 43/2015/1   Bank guarantee   100,000.00
Decision of the Finnish Safety and Chemicals Agency Tukes, 30 June 2014, KaivNro: 2819   Bank guarantee   100,000.00
Decision of the Finnish Safety and Chemicals Agency Tukes, 30 June 2014, KaivNro: 2819   Bank guarantee   35,000.00
Decision of the Finnish Safety and Chemicals Agency Tukes, 30 June 2014, KaivNro: 2819   Bank guarantee   50,000.00
Total       40,941,000.00
         
  2016 2015
Real estate investments' VAT refund liability 10,496,542.94 15,052,386.02
     
1.20 Financial risk management  

The nature of Terrafame Group's business exposes the company to foreign exchange, interest rate, credit and liquidity risks. The goal of the Group's financial risk management is to minimise the negative effects of changes in financial markets on its result and cash flow.

Terrafame Ltd.'s commercial and finance department identifies and assesses risks, acquires the instruments needed to hedge against risks, and reports on risks and any changes therein to the CEO and the Board of Directors.

Hedging transactions are carried out in accordance with the principles approved by the Board of Directors. If necessary, forward exchange agreements, foreign currency loans, interest rate swaps and nickel and zinc forwards are used in financial risk management. The financial structure of Terrafame Group's subsidiaries is planned, assessed and controlled while taking financial risk management into account.  

Currency risks

Since Terrafame Group operates in the euro area and sales are made in USD, the company's business operations involve currency risks.

In 2016, the Group had USD-denominated sales worth approximately EUR 101.0 million. Reasonably possible changes in the USD exchange rate would not have had a significant effect on the Group's result and shareholders' equity. The changes would have affected the valuation of uncompleted production and thereby also equity. The net realisable value principle was applied to the valuation of uncompleted production. 

Interest rate risk

At the date of closure of the accounts, the consolidated balance sheet showed EUR 1.3 million in interest-bearing liabilities. On the same date, the repayment period of interest-bearing liabilities was 0.8 years. This calculation includes all of the liabilities for which a repayment period can be defined. The company has not taken any special measures to hedge against interest rate risks during the financial year. Reasonably possible changes in the interest rate level would not have had a significant effect on the Group's result and shareholders' equity.  

Credit risk

Terrafame Group's documented procedures and practices define the principles and responsibilities of credit control. Once a new customer agreement has been signed, the Group estimates its expected annual volume and share of net sales, as well as the customer's creditworthiness.

By the end of 31 December 2016, no credit losses have been recorded. Credit insurance has not been applied to secure trade receivables.

The age distribution of trade receivables is presented in Note 1.16.  

Capital management

The aim of the Group's capital management is to support business through an optimal capital structure and increase shareholder value by aiming at the highest possible return. An optimal capital structure also ensures smaller capital costs.

Developments in capital structure are monitored through gearing and the equity-to-assets ratio. At the start-up phase of operations and at the end of the first financial year, part of the key figures are presented. The equity-to-assets ratio was 45.4% (2015: 37.5%).  

Liquidity risk

Terrafame Group continuously assesses and monitors the amount of financing required for business operations, so that the Group has sufficient liquid funds to finance its operations.  

 
The maturity distribution based on debt contracts is as follows:  
           
31 Dec. 2016 Carrying amount Cash flow 0–6 mos 6 mos–1 yr 1–2 yrs
Interest-bearing liabilities 1,287,951.44 1,287,951.44 770,291.88 517,659.56 0.00
Accounts payable 32,840,186.50 32,840,186.50 32,840,186.50 0.00 0.00
           
31 Dec. 2015 Carrying amount Cash flow 0–6 mos 6 mos–1 yr 1–2 yrs
Interest-bearing liabilities 3,534,491.49 3,590,999.82 1,511,727.09 779,727.21 1,299,545.52
Accounts payable 20,370,311.31 20,370,311.31 20,370,311.31 0.00 0.00
           
Liquidity risk related to business continuity is described in the accounting policies.     

Market risk

In 2016, the Group's sales amounted to EUR 101 million. The sales price is affected by
the world price of nickel and zinc. Reasonably possible changes in sales prices due to
fluctuations in global nickel and zinc prices would not have had a significant effect on the Group's result for the financial year 2016 and shareholders' equity. The changes would have affected the valuation of uncompleted production and thereby also equity. The net realizable value principle was applied to the valuation of uncompleted production.
           
1.21 Provisions – rehabilitation provision  

Long-term provisions on the balance sheet are related to the environmental and rehabilitation liabilities associated with the Group's mines and production plants.  

The provisions are based on estimates of future liabilities.  
     
Non-current    
     
Rehabilitation provision, in EUR 31/12/2016 31/12/2015
At beginning of year 162,078,025.00 0.00
Increase 0.00 162,078,025.00
At end of year 162,078,025.00 162,078,025.00
     
Total non-current 162,078,025.00 162,078,025.00
     
Estimated cost of the rehabilitation provision    
Rehabilitation of primary and secondary heaps and gypsum pond area 145,195,025.00 134,595,025.00
Repair of damages resulting from gypsum pond leak in 2012 10,300,000.00 23,600,000.00
Rehabilitation and fencing of the open pit area 2,583,000.00 883,000.00
Monitoring of mining site after completion of 4,000,000.00 3,000,000.00
rehabilitation measures    
Estimated rehabilitation costs 162,078,025.00 162,078,025.00
     
1.22 Interest-bearing and non-interest bearing liabilities 2016 2015
     
Non-current financial liabilities measured at amortised cost    
     
Other payables – hire-purchase debt 0.00 1,287,712.01
     
Current financial liabilities measured at amortised cost    
Other payables – hire-purchase debt 1,287,951.44 2,246,779.48
     
The fair values of current and non-current liabilities do not differ significantly from their carrying amount.    
     
1.23 Provisions, trade and other payables 2016 2015
     
Current    
Accounts payable 32,840,186.50 20,370,311.31
Accruals and deferred income 8,424,849.22 4,119,881.66
Other payables 1,040,235.20 3,644,475.69
  42,305,270.92 28,134,668.66
     
     
Non-interest bearing liabilities by currency, EUR    
USD 159,831.89 8,601.08
GBP 15,408.02 0.00
EUR 42,130,031.01 28,126,067.58
  42,305,270.92 28,134,668.66
     
1.24 Adjustments to cash flows from operating activities 2016 2015
Transfer of gains from sales of tangible assets to cash flows from investing activities -82,348.74 -30,000.00
Other income and expenses that do not include payments -67,267.35 310,000.00
  -149,616.09 280,000.00
     
1.25 Related party transactions    
     
Executives' benefits 2016 2015
Salaries and other short-term benefits 429,780.66 55,120.00
Termination benefits 0.00 0.00
Post-employment benefits 0.00 0.00
Other long-term benefits 0.00 0.00
Share-based payments 0.00 0.00
  429,780.66 55,120.00
     
Salaries and remuneration 2016 2015
Parent company    
CEO 165,360.00 55,120.00
Members of the Board of Directors    
Janne Känkänen 41,500.00 17,000.00
Juha Majanen 15,900.00 9,300.00
Minna Pajumaa 15,900.00 9,300.00
Matti Hietanen 0.00 6,000.00
     
Subsidiaries    
CEO 264,420.66 0.00
Members of the Board of Directors    
Lauri Ratia 78,000.00 25,257.14
Esa Lager 42,600.00 13,228.57
Tuomo Mäkelä 42,000.00 13,828.57
Total remuneration of the Board of Directors 665,680.66 149,034.28
     
During the financial year 2016, Terrafame Group Ltd. bought expert services worth a total of EUR 180,000 from a company owned by the related parties of Lauri Ratia, Chairman of the Board of Terrafame Ltd. 

During the financial year 2015, Terrafame Group Ltd. bought expert services worth a total of EUR 150,000 from a company owned by the related parties of Lauri Ratia, Chairman of the Board of Terrafame Ltd., and worth a total of EUR 27,500 from a company owned by Tuomo Mäkelä, a member of the Board of Terrafame Ltd. 

At the end of the financial year 2016, Terrafame Ltd.'s CEO, members of the Board of Directors and their related parties do not hold any shares in the company.

The Group's related parties include the Finnish government, which owns 100 per cent of the parent company, as well as the CEOs and Board members of the parent company and subsidiaries. 

The pension provision of key personnel is determined on the basis of statutory pension provision. 

Terrafame Ltd. has no bonus or other incentive schemes for its management. 

 
1.26 Parent company and subsidiary relationships of the Group     
Company   Domicile Holding (%)   Share of votes (%)
Terrafame Group Ltd. – parent company   Finland      
Terrafame Ltd.   Finland 100%   100%
Winttal Oy – operations discontinued on 15 December 2016   Finland 100%   100%
           
During the financial year 2016, the Group parent company offered services to parties considered as related parties worth a total of EUR 207,210.82.     
 
1.26 Events after the balance sheet date     

The agreements on the ownership and financing arrangements between Terrafame Ltd. and Trafigura Ventures V.B.V. company and Galena Private Equity Resources Investment 2 L.P. fund, which both belong to Trafigura Group, were signed on 3 February 2017, and the arrangements were executed on 10 February 2017. Sampo plc and Terrafame Group Ltd. are acting as co-investors in these arrangements. The financing arrangement totals EUR 250 million. As a result of the financing arrangement, Terrafame Ltd. has the funding necessary to complete the ramp-up of production as well as achieve positive cash flow. In the arrangement, pre-transaction value of Terrafame Ltd. before the equity investment is EUR 381.8 million, which corresponds with the capitalisation of Terrafame by Terrafame Group Ltd. before the arrangements.      

As a result of the arrangement, the Galena fund now holds approximately 15.5 per cent of the shares of Terrafame Ltd. against an equity investment of EUR 75 million. Terrafame Group Ltd. made an additional equity investment of EUR 25 million to Terrafame Ltd. At the time of implementing the arrangement, Terrafame Group Ltd. holds approximately 84.2 per cent of Terrafame shares. Terrafame Group Ltd. also committed EUR 50 million capital investment into Terrafame Ltd., which is valid until the end of 2018. 

As part of the arrangement, Trafigura granted a loan of EUR 75 million to Terrafame Ltd., in addition to which Sampo plc granted EUR 25 million for the loan arrangement under the same conditions as Trafigura. The loans entitle Galena and Sampo to subscribe toTerrafame's shares with an amount that corresponds to the loan equity and the interest on the loan. The subscription option is valid for five years. The 1.5 per cent loan drawdown fee was paid in Terrafame Ltd. shares. 

It was also agreed in the arrangement that Trafigura will purchase all the nickel-cobalt sulphide that Terrafame produces, as well as 80 per cent of zinc sulphide for the next seven years. 

The arrangement had no effect on the business plan, management or personnel of Terrafame. 

The repairs of the damages caused by the fire in the H2S reactor were completed in early 2017, and production started at the metals production plant on 13 January 2017.