Operational risks

Risks related to production ramp-up

At present, the Talvivaara mine is in the production stage, and the production volumes reached have already demonstrated that all the production processes and technologies work on a commercial scale. However, the ramp-up of production still continues, and its successful completion for reaching of the planned production volumes according to the rough schedule is dependent on many factors, such as the recovery rates and the leaching rate of metals in bioheapleaching, the sufficiency and reliability of the production equipment used in the various processes of production (in the mine, materials handling, bioheapleaching, and recovery of metals), and the personnel’s ability to manage the production processes as planned. If the planned level of production cannot be met with the existing equipment and processes, additional investments may be required for reaching the capacity needed and achieving full production capacity may be delayed. Any deviation from the planned ramp up schedule may adversely affect the company’s financial situation and profitability.

Talvivaara seeks to minimise risks related to the production ramp-up by continuously monitoring the progress of the ramp-up and the operation of the processes and equipment as operation capacity increases. The aim is to eliminate any bottlenecks as soon as practically possible, so as to ensure the progress of the ramp-up process. Improving the availability and reliability of production equipment is carried out via surveys to chart the needs for predictive maintenance, critical processes, and production risks, as well as through related improvement measures. 

Availability of supplies and energy, logistics, and related price risks

The most important supplies required in Talvivaara’s operations are limestone, burnt lime, caustic soda, elemental sulphur, sulphuric acid, and propane. These are all critical for the continuation of production and are used in large amounts, for which reason stock for only a couple of weeks can be kept at the mine. Any disruptions in the availability of supplies or in logistics may result in delivery on less favourable terms or, at worst, in production losses.

The company seeks to ensure continuous and sufficient availability of supplies as well as reasonable commercial terms, by concluding contracts with two parallel suppliers and, where possible, through long term, fixed-price contracts. In addition, Talvivaara intends to increase its reserve stocks in order to bring flexibility to logistics.

Talvivaara’s mining operations also require significant levels of energy, most notably electricity. Any volatility in energy prices could affect the company’s results of operations. Talvivaara uses hedging and other contractual means to minimise energy price risk, where possible.

Infrastructure risks

The Talvivaara mine is in a sparsely populated, sub-Arctic area in Eastern Finland, where the company’s production operations will rely on the infrastructure being adequate. Talvivaara depends on trucking and the rails for delivery of the raw materials and supplies to its operations, while its products are transported by rail and partly also by ship to the customers. The electricity required by the mine is supplied through the company’s own power line connected to the Finnish main grid. Disruptions in the power supply or transport services because of weather-related problems, failures in key equipment, lockouts or other industrial action, and other events could temporarily disturb Talvivaara’s mining operations and impair its ability to receive supplies and to supply its commodities to its customers, which could have a material adverse effect on the business, financial situation, or the results of operations for the Talvivaara group.

Talvivaara seeks to manage infrastructure risks by making provisions for alternative transport routes and modes, insofar as this is practically possible. In addition, the company intends to increase its reserve stocks of raw materials and its end-product inventories. However, the effect of disruptions to power on the company’s production operations cannot be prevented completely, as the stand-by generators are not able to maintain production, only certain critical functions.

Personnel risks and dependence on key personnel

The business of the Talvivaara group depends in significant part upon the contributions of a number of the Talvivaara group’s key senior management and personnel – in particular, its highly skilled team of engineers and geologists. Factors critical to retaining Talvivaara’s present staff and attracting additional highly qualified personnel include Talvivaara’s ability to provide these individuals with competitive compensation arrangements.

A failure by Talvivaara to retain or attract highly qualified individuals in key management positions as well as highly skilled engineers and geologists could have a material adverse effect on the Talvivaara group’s business, financial situation, or results of operations. Talvivaara seeks to manage key personnel risks by updating its remuneration and reward schemes and providing its key personnel with training and advancement opportunities, where possible. For urgent and acute situations, a succession plan has been developed for the senior management.

Other key risks associated with personnel include risks related to gaps in competence, data security, and occupational accidents and diseases. Talvivaara seeks to minimize these risks through systematic determination of competence areas and training, an active communications policy, and clear instructions emphasising safety. The company cannot completely eliminate the risks connected with national strikes; however, it aims to ensure that duties that are critical for the safety of the environment and the production plants can always be performed.

Communications and reputation risks

Talvivaara aims to provide information in an open, transparent, accurate, and timely manner in both internal and external communications. The company seeks to prevent the dissemination of incorrect or untimely information by applying a standard communications policy and issuing appropriate instructions, as well as through internal control related to economic and financial processes. Internal guidelines and processes associated with internal control are reviewed on a regular basis, for their continuous improvement.

Risk to Talvivaara’s reputation may arise from the company’s own actions or the actions of third parties. The company seeks to avoid errors in its actions, such as accidents, by providing appropriate and up-to-date instructions and training. However, should an accident or other event damaging to the company’s reputation occur, Talvivaara seeks to provide appropriate, open, and truthful communication concerning it. The same principle applies when the company’s reputation is threatened by any action of third parties.

Technology and intellectual property rights

Talvivaara is the first company in the world to apply bioheapleaching technology to the recovery of nickel. It has already been demonstrated that the process works at the Talvivaara mine, but the final recovery rates of nickel and other metals on an industrial scale are still unknown. If the final recovery rates or the leaching rate for the full process deviate substantially from the company’s estimates, this may have a significant economic impact on the company in the medium and long term. Talvivaara seeks to minimize this risk actively through process developments and additional studies. However, the final recovery rates and the leaching rate still can be confirmed only in 2013, at the earliest, when the ore stacked in 2008 in the early stage of production is expected to reach the final leaching stage.

The Talvivaara group does not currently have any registered intellectual property rights related to the bioheapleaching technology, and the company does not consider it likely that this process, which occurs naturally, could be patented. The Board of Directors believes that the technology used by Talvivaara does not infringe the rights of any third parties. However, there can be no guarantee that Talvivaara will not be subject to claims of infringement of third-party intellectual property rights. If such a claim were made, it might result in protracted legal proceedings that could adversely affect Talvivaara’s business and cause considerable costs and liability to pay compensation related to rights of use, regardless of the outcome of the claim.

In line with its strategy related to intellectual property rights, Talvivaara seeks to establish whether its technologies can be protected insofar as they meet the criteria set for the level of inventiveness and novelty, and the company believes that having registered intellectual property rights would protect the utilisation of the invention at Talvivaara or provide opportunities for commercial utilisation of the invention elsewhere. In addition, the company aims to chart any third-party rights that might pertain to Talvivaara’s operations and thus avoid the risk associated with any infringement of patents or other intellectual property rights.