CEO's review

Terrafame continued its ramp-up and stabilisation of operations

2017 was in line with Terrafame’s expectations. We continued the ramp-up and stabilisation of our operations. In nickel production, we exceeded the previous year’s production as early as mid-2017, and our net sales more than doubled in a year.

During the year, we continued the mining and processing of ore at the target level. We mined, crushed and agglomerated 17.5 million tonnes of ore as a feed to our bioleaching process.

At the start of our operations in autumn 2015, bioleaching had dwindled in the primary and secondary leaching areas. In May 2017, we completed the stacking of the entire primary area with new ore. During the year we continued to block 3 in the secondary leaching area. This work enhances the leaching yield of metals.

Our metals production plant more than doubled volumes of nickel and zinc compared with the previous year. At the same time, we achieved the mine’s annual production records in our main products: nickel, 20,864 tonnes and zinc, 47,205 tonnes. Towards the end of the year, we also made the first customer deliveries of copper.

Demand for metals remained robust

The global demand for our main products, nickel and zinc, continued at a good level in the market in 2017. In the same period, the combined stock levels of the metal exchanges in London and Shanghai decreased, contributing to a favourable price development.

The development of the global market price of nickel was slow during the first half of the year, but the price clearly increased in the second half. In the fourth quarter, the average price was USD 11,583 per tonne, which was 7.2% higher than the average price in the fourth quarter of the previous year (Q4 2016: 10,810). Due to the weakening of the US dollar, the price of nickel in euros in the fourth quarter of 2017 was almost at the level of the previous year (Q4 2017: 9,838 and Q4 2016: 10,019).

The global market price of zinc reduced slightly in the third quarter, but otherwise the price developed progressively. In the fourth quarter, the average price was USD 3,235 per tonne, which was as much as 28.5% higher than the average price in the fourth quarter of the previous year (Q4 2016: 2,517). The price of zinc in euros in the fourth quarter of 2017 was 17.8% higher than in the fourth quarter of the previous year (Q4 2017: 2,748 and Q4 2016: 2,333).

Private funding for ramp-up and further processing

During the year, we acquired private funding for finalising the ramp-up as well as for investing in further processing of our main product. Basically, we have assessed two alternative routes for processing our nickel-cobalt sulphide: the production of metallic nickel-ferro alloy suitable for stainless steel, and the production of nickel and cobalt chemicals suitable for the manufacturing of batteries used in electric vehicles.

In February, we announced a financing arrangement of EUR 250 million for the finalisation of the ramp-up and, in November, in connection with a USD 200 million financing package, we announced that we are planning the production of battery grade nickel and cobalt chemicals.

New steps forward in occupational safety

I am particularly happy about the fact that, in just over two years, we have succeeded in a transformation of our safety culture. At the end of the year, our lost-time injury frequency rate (LTIFR), i.e. the number of lost-time injuries per one million person-hours worked, was 3.5, which is clearly better than our target of below 5.0 and the LTIFR of the previous year, 8.4. We also reached a new record – 131 days – without lost-time injuries.

In addition to avoiding injuries, we have invested in occupational hygiene with very good results. We continuously focus on the use of protective equipment and utilise biomonitoring based on precise analytics for the monitoring of exposure to metals. The biomonitoring results of our personnel have been very good.

Solid water situation

At the end of 2016, we had already reduced the amount of water stored at the site close to the target level. At the start of 2017, we received an environmental permit for our new centralised water treatment plant and commissioned the plant. Thanks to the good water situation already in the first quarter, we were able to suspend the discharge of water from the site for about seven weeks. Spring melt water or autumn rains did not result in specific measures.

Of the annual sulphate discharge quota of 16,300 tonnes, about one third was left unused, and our total sulphate load decreased compared with 2016.

Full-year EBITDA positive

In the light of economic figures, 2017 was a good year at Terrafame. We continued to improve our profitability with persistence.

Our net sales more than doubled to EUR 220.0 million. Our EBITDA was EUR 13.6 million positive, which is a good sign that we are progressing towards a profitable business as planned. At the same time, our operating loss reduced to EUR -6.2 million. We also made significant investments worth EUR 92.1 million in the expansion of the bioleaching area, a third hydrogen sulphide production line and additional mining equipment, as well as for sustaining capex. Based on these figures and achievements, we are committed to continued efforts in 2018.

I would like to warmly thank our customers, business partners and owners, as well as our personnel, who have persistently continued to develop our operations. I greatly appreciate the feedback that our neighbours and other local stakeholders have provided concerning our operations. Thank you also to the numerous visiting groups who have travelled to Sotkamo in Finland to become acquainted with our operations and to engage in face-to-face discussions with our company representatives.

 


Joni Lukkaroinen
CEO
Terrafame Ltd

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