Talvivaara shareholders to stump up cash to save mine

HELSINKI Fri Mar 8, 2013 10:11am EST

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HELSINKI (Reuters) - Shareholders in Finnish nickel miner Talvivaara (TLV1V.HE) TALV.L have agreed to stump up 261 million euros ($341 million) to keep the firm's mine running and give it a chance to recover from a costly waste water leak.

Talvivaara shares rose about 2 percent in Helsinki and London on Friday after shareholders backed a deeply-discounted share sale that could help the firm's Sotkamo mine resume normal production this year.

However, analysts said the company has a way to go to prove it can stabilize its business after repeated production problems and amid weak nickel prices, as well as opposition from environmentalists.

"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," said Evli analyst Antti Kansanen.

Talvivaara's Sotkamo mine was hailed as a pioneer in the use of bacteria to extract nickel in a process called bioheapleaching, but has proven a disappointment for investors.

Even before the waste water leak in November, it 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.

Talvivaara reported an operating loss of 57 million euros in the fourth quarter, hit by clean-up costs and halted production following the November leak. Its shares have shed over two-thirds of its value over the past year.

Talvivaara said it would issue up to 1.6 billion new shares to existing shareholders at 0.16 euros apiece, a deep discount to the current price of around 1.05 euros.

CHALLENGES

Shareholders approved the rights issue at a meeting earlier on Friday. The firm's top three investors with a combined 38 percent stake - chief executive and founder Pekka Pera, Finnish government investment firm Solidium and mutual pension insurance firm Varma - have issued irrevocable undertakings to take part in the share sale, which is also underwritten by five banks.

FIM analyst Markus Liimatainen said the price was set low enough to encourage a wide range of shareholders to take part, taking the burden off the banks.

"The rights issue has been set low enough so the underwriting banks do not have to become owners," he said.

The results of the issue are expected around mid-April.

At the end of December, Talvivaara had a debt-to-equity ratio of 184 percent and cash of just 36 million euros. Analysts have said it needs to significantly ramp up production in order to roll over a convertible bond maturing in 2015.

The company has said it will produce around 18,000 tonnes of nickel this year, but some analysts have said it needs to boost that to around 25,000-30,000 per year if it wants to turn cash flow positive.

Talvivaara CEO Pekka Pera said his aim was to reach the full nickel production capacity of 50,000 tonnes annually in the next few years.

"Our plan is to get our balance sheet in order and production ramped up," he told reporters after the shareholder meeting, adding the money should last the company several years.

Another challenge for Talvivaara will be to appease regulators amid criticism from environmentalists.

After winning approval to release extra amounts of waste water from the mine, it recently began the draining process - a crucial step towards returning to regular production. However, a nature conservation group and municipalities have asked a Finnish court to revoke the waste water permit.

On Friday, Talvivaara's office in Espoo was hit by a smoke bomb, police said. One person inhaled the smoke but was uninjured.

Around 20 demonstrators with drums, and almost as many police officers, gathered outside the shareholders' meeting in Helsinki, demanding the company run down the mine and fix environmental damage. ($1 = 0.7644 euros)

(Editing by Ritsuko Ando and Mark Potter)

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