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UPDATE 3-Talvivaara shares at record low after warning needs more funds
October 10, 2013 / 9:16 AM / 4 years ago

UPDATE 3-Talvivaara shares at record low after warning needs more funds

* Company hit by low nickel price, production problems

* Biggest shareholder undecided on further investment

* Shares fall over 20 percent to record low (Adds comments from CEO, Varma, and broker)

By Terhi Kinnunen

HELSINKI, Oct 10 (Reuters) - Finnish nickel miner Talvivaara warned on Thursday it needs another cash injection just six months after its last fundraising, prompting its biggest shareholder to say it was not sure whether to invest more in the company.

Its shares, already down around 80 percent in the past year, fell a further 20 percent to a record low of 0.0772 euros on the Helsinki bourse on concerns about the group’s viability.

Talvivaara’s troubled Sotkamo mine in eastern Finland, its only mine, was intended to exploit the potential of an innovative technology using bacteria to more cheaply extract nickel from relatively low-grade ore.

But the mine has suffered repeated problems, including a waste water leak and disruptions related to heavy rain last year. It has also been undermined by a near 20 percent slump in the price of nickel this year, caused by a global glut of the metal, mainly used in alloys such as stainless steel.

“Taxpayers’ money seems to be the only remaining channel to keep this company going. And that makes no sense,” said Jukka Oksaharju at brokerage Nordnet. “On financial grounds, I would put this company to sleep. It is an eternal abyss of share issues.”

Talvivaara launched a round of cost cuts in June, aiming to cut or temporarily lay off around 250 people, or around 40 percent of its workforce. It currently has around 510 employees.

“In order to secure sufficient financial flexibility and liquidity ... we are now assessing all available options for additional funding,” said Chief Executive Pekka Pera in a statement.

Any fresh fundraising would come after the company in April raised 261 million euros ($353 million) in a rights issue of new stock. The group said it needed further funds given prolonged weakness in the nickel price and limited success in boosting production at Sotkamo.

Pera did not specify how the company, whose main customer is Norilsk Nickel, might raise funds this time round and did not say how much it might need.

Finnish state fund Solidium, which took part in the earlier fundraising and is the biggest investor with a 17 percent stake, said the miner’s results had been a disappointment and it had not yet decided whether to provide more financing.

“Talvivaara has so far not met our expectations of profitability,” said Solidium’s investment director Hanna Masala. “There is no decision on the matter.”

The fund wrote down 679 million euros earlier this month due to the poor performance of its investments in Talvivaara and Finnish metals companies including Outokumpu and Rautaruukki.

INDUSTRY PIONEER

Pera, who founded the company and is the second-biggest shareholder, declined to say whether he would bet more of his own money in the mine. Pension fund Varma, the third-biggest shareholder, declined to comment.

The Sotkamo mine was considered an industry pioneer for its use of bacteria to extract nickel, a process known as bioheap leaching. But it has repeatedly missed production targets due to various production glitches.

Pera bought the rights to the mine in 2004 for one euro from his former employer Outokumpu, which had thought the nickel content at the mine’s deposits to be too small to turn a profit, while Pera believed large-scale bioheap leaching would make it viable.

He stepped down from the CEO role in April 2012 but was reinstalled in mid-November to take control of the mine following revelations it had leaked high concentrations of metals and salty water into nearby lakes and streams.

Talvivaara has suffered negative free cash flow for much of the past five years, Reuters data shows, including an outflow of 81 million euros in the six months through June.

It ended the second quarter with 101 million euros in cash and cash equivalents. It has a total of 860 million euros in total liabilities, including a revolver bond of 130 million euros maturing in November next year.

Markus Liimatainen, an analyst at brokerage FIM, said it could prove difficult for Talvivaara to find new financing due to disappointments over its slow ramp-up of production from Sotkamo.

The company, which said it produced 2,595 tonnes of nickel in the third quarter, had said in August it expected a substantial improvement in production from the first half of the year when it produced around 4,500 tonnes.

That compares with an earlier 2013 production forecast of 18,000 tonnes, which it had to withdraw in July. ($1 = 0.7398 euros) (Additional reporting by Jussi Rosendahl; Editing by Ritsuko Ando and David Holmes)

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