Talvivaara shareholders set to approve rights issue

HELSINKI, March 8 Thu Mar 7, 2013 7:01pm EST

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HELSINKI, March 8 (Reuters) - Shareholders in Finnish nickel miner Talvivaara are expected on Friday to approve a share issue worth up to 260 million euros ($338 million), a move seen as vital to keeping the firm's mine running after a costly waste water leak.

A share issue would dilute earnings for existing shareholders, but the company has said its proposed issuance of up to 26 billion new shares is necessary for the mine to keep operating.

"I do not think that there will be such a large group of owners who say no to the issue," FIM analyst Markus Liimatainen said. "Why would anybody say no when they know what the alternative would be?"

Talvivaara reported an operating loss of 57 million euros in the fourth quarter, hit by clean-up costs and halted production following the waste water leak in November.

The miner announced the rights issue plan on Feb 14.

Its three top owners, CEO and founder Pekka Pera, Finnish government investment firm Solidium and mutual pension insurance firm Varma, are backing the move. Their combined stake in the company, with a market capitalisation of 277 million euros, amounts to 38 percent.

The Sotkamo mine was initially hailed as a pioneer in the use of bacteria to extract nickel in a process called bioheapleaching, but has proven a disappointment for investors over the past few years.

Even before the November leak, it had suffered from a series of production disruptions including the death of a worker and excess rain water that forced it to halt ore mining and crushing in September.

At the end of December the firm had a debt-to-equity ratio of 184 percent and cash of just 36 million euros.

Some analysts said the money raised through rights issue would give Talvivaara more breathing space and a chance to resume normal production later this year as planned.

"The second half (of this year) is critical, because they have said the production is developing positively and have given production guidance, which they have to reach," Evli analyst Antti Kansanen said. Talvivaara has estimated it will produce around 18,000 tonnes of nickel this year.

Yet analysts note that even with the share issue, Talvivaara still has a way to go before securing stability.

Talvivaara has been granted approval to release extra amounts of waste water from the mine. It has begun draining the water, meeting a condition for support from five banks underwriting the share offer.

However, a nature conservation group and municipalities have asked a Finnish court to revoke the waste water permit.

FIM's Liimatainen said next year Talvivaara should be able to increase annual nickel production to around 25,000 tonnes and turn cash flow positive. If it can't, he said, it may have a tough time rolling over a convertible bond maturing in 2015.

($1 = 0.7692 euros) (Reporting by Mark Potter)

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