UPDATE 2-Talvivaara wins court backing to renegotiate debt

Tue Dec 17, 2013 10:02am EST

* Firm ended Q3 with $1.2 billion in liabilities

* To restructure debt after running low on funds

* Analysts say company will need to raise more money (Adds comments from analyst, hedge fund)

By Ritsuko Ando and Jussi Rosendahl

HELSINKI, Dec 17 (Reuters) - Struggling Finnish nickel miner Talvivaara has won court approval to renegotiate its debt, allowing the company to continue production and avoid the immediate risk of bankruptcy.

While the news sent its shares up almost 20 percent on Tuesday, analysts said the firm's future was still in doubt due to hefty liabilities, uncertainty over talks with creditors and production problems at its only mine in Sotkamo, north Finland.

"This news can be seen as diminishing their immediate risk of bankruptcy. But it is difficult to understand these share price moves. This is not that positive," said Inderes Equity Research analyst Antti Viljakainen.

"They will need new financing anyway. I don't believe they have enough cash for the whole first quarter, I think they will be pretty dry by mid-February."

Hurt by falling nickel prices and repeated production disruptions, Talvivaara sought a court-led reorganisation in November as it ran low on funds. It has been waiting for court approval to include the debt of a subsidiary, Talvivaara Sotkamo, in its reorganisation plans.

"With the reorganisation process now beginning, we can also continue our metals production, which re-commenced last week after a one month stoppage of our metals recovery plant," Chief Executive Pekka Pera said in a statement.

Analysts said the reorganisation could involve creditors swapping some of their debt for equity, and that Talvivaara would also need to raise more money. The company has said only that it has enough cash for the first quarter of 2014.

Talvivaara pioneered the use of bacteria to extract nickel in a process called bio heapleaching, an innovation initially hailed as cost-efficient. But the mine ran into a series of production problems last year, including a toxic leak that pushed up uranium levels in nearby lakes and rivers.

The cost of cleaning up and halting production forced the company to go to shareholders with a cash call in March. It has also suffered from a drop of more than fifth in the price of nickel this year.

Including loans and upfront payments from zinc producer Nyrstar and Canada-based uranium miner Cameco Corp , Talvivaara ended the third quarter with 865.6 million euros ($1.2 billion) in total liabilities.

Nyrstar is Talvivaara's top creditor after paying 232 million euros in advance for zinc deliveries. On Monday, Nyrstar reinstated support for the reorganisation after previously withdrawing it due to uncertainty over the process.

Other creditors include Finnish bank Nordea Pankki Suomi , government agency Finnvera and pension fund Varma.

CAUTION

With the shares down around 70 percent from two years ago, Nordic brokerage Nordnet said there had been strong buying by Finnish small investors in recent trade.

But analysts said caution was still in order, warning the company will likely need to issue more shares as part of the debt restructuring process, thereby diluting the holdings of existing investors.

Hedge fund Noster Capital, which has a short position on Talvivaara, said the restructuring would likely result in a substantial impairment of equity and debt. It called on the company to better communicate the impact of the process.

At 1450 GMT, Talvivaara shares were up 18.5 percent at 0.086 euros.

($1 = 0.7271 euros) (Editing by Louise Heavens and Mark Potter)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.