CEO's review

Eventful year of ramp-up

Terrafame's first full year of operations in 2016 was, above all, a year of ramp-up. We persistently increased the production of nickel and zinc in each quarter, achieving over EUR 100 million in net sales in 2016. We expanded our customer base and found the right end-use applications for which customers are willing to pay a premium based on excellent product features. On the basis of our own quality monitoring and feedback from customers, we succeeded very well in developing our product and service quality. 

The demand for nickel increased clearly during the year. The global growth of 7.5 per cent was especially due to the increased demand for stainless steel and the growth of manufacturing batteries for electric cars. In the same period, nickel mine production decreased globally by around one per cent. The average price (London Metal Exchange) in the fourth quarter of 2016 was USD 10,810 per tonne, which is 14.5 per cent higher than the average price during the corresponding period in 2015. In 2016, the demand for zinc grew by around 2.4 per cent, while zinc mine production fell by nearly 6 per cent. The average price of zinc (London Metal Exchange) in the fourth quarter of 2016 was USD 2,517 per tonne, which was 56 per cent higher than the average price during the corresponding period in 2015.

Good development in production and process control

Terrafame broke all previous annual production records for ore mining and processing. We mined, crushed and agglomerated 14.2 million tonnes of ore. The ore quality remained homogeneous, and 37,042 tonnes of nickel were stacked on the primary leaching heap. In the third quarter, we got very close to our long-term target of 3,750 tonnes of nickel stacked per month, and then proceeded to exceed this target in the fourth quarter.

Approximately 75 per cent of the primary bioleaching area was in use by the end of 2016. The bioleaching process functioned better than expected. The changes made in the construction of the bioleaching heaps, the quality assurance of agglomeration and process control proved successful. During 2016, 11,584 tonnes of nickel and 27,868 tonnes of zinc were leached by Terrafame.

Metals production was enhanced considerably in October when the second production line was put into operation. In total, 9,554 tonnes of nickel and 22,575 tonnes of zinc were produced during 2016. However, in late 2016, the metals production plant's production volume was affected by the fire at the hydrogen sulphide plant.

Efforts in quality, environmental and safety work are bearing fruit

At the beginning of 2016, we launched the development of our management system for quality, environmental and occupational health and safety management. We jointly clarified roles and responsibilities, and started to make more efficient use of the process-based way of working. In addition to our own organisation, we linked external service providers to our quality work. On the basis of an independent audit carried out in November, our management system was granted certification according to international standards in early 2017. 

Significant progress was made in the development of occupational safety during 2016. Terrafame's lost time injury frequency, i.e., the number of accidents per million working hours, fell to 8.4 from 23.3 at the end of the previous year, which was not far from our target of less than 7.0. At the turn of the year, we achieved a record-breaking 113 days without any lost-time injuries. 

One of the major challenges for Terrafame has been the water situation at the mining site, which was passed down to us from the previous operator. From the early summer to the end of the year, our determined efforts improved the water situation considerably. At the end of the year, 3.8 million cubic metres of water was stored at the site, which came very close to the targeted level of 3 million cubic metres. During the year, the sulphate content of the released purified water was, on average, less than half of the limit value, and metal concentrations were, on average, less than a tenth of the limit values set for them. In November, we began the trial use of a new centralised water treatment plant that will make water purification more cost-effective and the quality of the purification results more consistent. 

Positive operating profit in the fourth quarter

Terrafame's net sales in 2016 totalled EUR 100.8 million. The expenses relating to work in progress at the end of 2016 totalled more than the net realisable value of work in progress. For this reason, work in progress was valued at EUR 49.6 million, according to the net realisable value.

Operating expenses amounted to EUR 267.5 million, which was EUR 24.0 million below the budgeted level. The main reason for staying under budget was the improvement in the chemical efficiency of the metals production plant. EBITDA was negative EUR 120.4 million, and operating loss was EUR 124.9 million. 

Terrafame's investments were significant in 2016, at EUR 84.3 million. The most important of these were the centralised water treatment plant, the base structures of the secondary bioleaching heaps 3 and 4, the modernisation of the hydrogen sulphide plant and lime plant, as well as the acquisitions of the lime plant and the laboratory from Talvivaara Mining Company Plc.

Strong team spirit will take us far

In business operations, we have trusted that a reasonable solution would be found for the financing required for the company's ramp-up. Our ownership base was expanded in early 2017, and the future is looking bright for Terrafame. Alongside the ramp-up, we can continue our development work relating to the commercialization of copper and further processing of nickel, launched in 2016. 

Over the past year, Terrafame has grown into a major export and mining company, on the Finnish scale. This would not have been possible without a strong team and fighting spirit. I would like to warmly thank the staff's commitment to their daily work under any conditions. Our business partners have also been a great support during Terrafame's ramp-up, and the good feedback we have received from our customers has kept us going. Residents of the nearby areas, other stakeholders and the authorities have provided us with valuable feedback for developing our operations.

 


Joni Lukkaroinen
CEO
Terrafame Ltd.