Strategic risks

Business environment

The cycles of the global economy and business affect Talvivaara’s operations and profitability, through, for example, changes in raw material prices, foreign currency exchange rates, and interest rates. The effects and management of these risks are discussed in more detail in the section ‘Financial and economic risks’.

Economic cycles also affect the demand for Talvivaara’s products in the markets. The company has protected itself against demand risk by selling its nickel, cobalt, and zinc production to customers under long-term bilateral contracts, which cover Talvivaara’s total output of these metals for contract periods of several years. A long-term off-take agreement has also been concluded for the planned uranium concentrate production.

Although long-term sales agreements protect Talvivaara from demand risk, they also expose the company to counterparty risk if the contractual partners do not fulfil their commitments. Talvivaara’s most important contractual partners are Norilsk Nickel Harjavalta Oy, to which the company has agreed to sell all of its future nickel and cobalt production for 10 years from the commencement of full-scale production or when 300,000 tonnes, in the aggregate, have been delivered, and Nyrstar AG, to which the company has agreed to sell all of its zinc production until 1.25 million tonnes, in aggregate, have been delivered. Revenues from these agreements are estimated to represent approximately 90% of the Group’s net sales when the Talvivaara mine has reached its full production rate. Talvivaara seeks to protect itself against counterparty risk by charting alternative potential buyers and by maintaining the related information and updating it regularly.

Political and legislative risks

Mining operations require a permit and are regulated by many laws and regulations. Changes to laws and regulations governing mining operations, the production of uranium, or environmental protection may cause significant increases in production costs and/or costs related to permits and their maintenance.

Talvivaara actively promotes the interests of the mining industry by participating in the work of the industry’s association and seeks to influence decision-making related to the industry and to foresee any effects of changes in legislation on its operations. 

Estimates of mineral resources

In the long term, Talvivaara’s financial performance is affected by how great a proportion of its estimated mineral resources can be exploited. The descriptions of mineral resources in this report constitute estimates that comply with standard evaluation methods generally approved in the international mining industry and are stated in conformity with the Australian JORC code.

In respect of these estimates, no assurance can be given that the anticipated tonnages and grades will be achieved, that the indicated level of recovery will be realised, or that mining and processing will be economically profitable. The actual reserves may not conform to geological, metallurgical, or other expectations. Lower market prices, increased production costs, lower than expected recovery rates, and other factors may render Talvivaara’s reserves uneconomical to exploit and may result in revision of its reserve estimates from time to time. The information on reserves is not indicative of future results of operations.

Talvivaara seeks to reduce the risk related to its mineral resources through additional surveys, which are carried out continuously, to improve the reliability of reserve estimates and the quality of mine planning.