Government to initiate special measures following bankruptcy of Talvivaara Sotkamo Ltd - with the objective of ensuring environmental management and the continuation of mining operations

Talvivaara Mining Company Plc, which has been nearly a year in administration, announced on 6 November 2014 that its operational subsidiary, Talvivaara Sotkamo Ltd, has filed for bankruptcy. Overall, the situation of Talvivaara is at this stage unclear, because its listed parent company, Talvivaara Mining Company Plc, will still continue in administration. Trading in the parent company’s shares has been suspended, however. Evidently, the parent company’s board of directors and the administrator of its restructuring programme consider that the parent company, at least at this stage, has the capacity to continue measures, in accordance with the proposed restructuring programme, to find a long-term solution for the continuation of mining operations.

“Talvivaara has been simultaneously a large-scale start-up company as well as a significant industrial operator. The company’s importance has been extensive both in terms of industrial policy and regionally, and it is a very significant employer. Known environmental problems have been connected with the company’s operations. It is obvious that the filing for bankruptcy of Talvivaara’s operational subsidiary is a hard blow for the Finnish mining industry and the Kainuu region,” says Minister of Economic Affairs Jan Vapaavuori.

“It is clear that costs will arise to the State as a result of the bankruptcy. At this stage, the total cost is impossible to assess, however, because costs will be influenced by the number of necessary environmental measures and by solutions relating to the future of mining. The Government will earmark EUR 50 million immediately for costs, targeted at stabilising both the environmental situation and mining operations,” adds Minister Vapaavuori.

The State involved to the end in seeking a financial solution

The State was involved to the end in negotiating a financial solution for Talvivaara. At the final stage, a solution was sought via the administration procedure on the basis of a restructuring programme proposal submitted by the administrator on 30 September 2014. The goal of the negotiations was to attract financing on market terms to enable the creation of conditions for profitable business operations.

“The starting point has been that the State can only participate in a financial solution in which industrial or commercial operators also participate with at least corresponding holdings and on corresponding terms. The cornerstone of the negotiations has been that the State cannot assume principle responsibility in financing and that the availability of financing should be linked to clear objectives. Of these objectives, the most significant were implementing investments critical for environmental risk management as well as stabilising the company’s operations and safeguarding the overall interests of the State.

“Despite efforts lasting more than a year, Talvivaara was not able to attract sufficient financing from commercial operators and therefore the reorganisation procedure remained incomplete when the company’s financial resources came to an end. A solution was pursued with numerous models, but poor cash flow, environmental risks, production difficulties and the acute need for additional financing ultimately made the equation too difficult, despite an exceptionally tough restructuring programme proposal. When all the conceivable options had been discussed, the only remaining option was the subsidiary’s filing for bankruptcy,” continues Vapaavuori.

A hard blow for Kainuu

Talvivaara Mine has employed directly and indirectly around 1,500 workers in the Kainuu region. This is around 4% of the Kainuu labour force. In addition, the bankruptcy may impact many transport companies, raw material suppliers and nickel processors around Finland. Most of Talvivaara’s personnel have been employed by the subsidiary which has filed for bankruptcy. The bankruptcy will lead directly to job losses, but the bankruptcy estate will clearly need in future a significant number of employees and subcontractors.

“This is a hard blow, particularly for Kainuu. Employment opportunities will be quickly sought with other companies in the region for those who are made unemployed. In the longer term, measures will be launched aimed at creating new jobs in the Kainuu region. For this to succeed, we must be able to create economic growth in the area. Abrupt structural change measures will focus on creating this growth. We assume that the Kajaani sub-region will apply for status as an abrupt structural change region and that it will be designated as such,” says Vapaavuori.

Managing the environmental effects

The bankruptcy estate will be responsible in the future for ensuring that the mine’s operational maintenance or possible shutdown will not cause damage to the environment. The State, on the other hand, will ensure the bankruptcy estate has sufficient resources and expertise to manage environmental risks. Environmental permits relating to mining operations will also be a matter for the bankruptcy estate.

“The State will not compromise on the handling of environmental issues in the bankruptcy situation. The environmental authorities will continue normally in their work to resolve Talvivaara’s environmental problems and all permit conditions must also be adhered to in the future. Moreover, the necessary waterways management investments will be made despite the bankruptcy,” explains Vapaavuori.

Possible continuation of mining operations

The bankruptcy of Talvivaara Sotkamo Ltd does not necessarily mean the end of mining operations. The bankruptcy estate will try to find a new operator for the mine. If, however, a new operator cannot be found, then there will be no other option but to close the mine.

“It’s clear that the State will participate in negotiations on the continuation of the mine, and we aim to promote the continuation of economically viable mining operations in an environmentally sustainable way,” emphasises Vapaavuori.

“The bankruptcy may even provide an opportunity to continue mining operations on a new basis, if new actors and financing are included in the undertaking. This would ensure the effective management of the environmental challenges, and at the same time it would be economically viable. I believe that conditions may arise in future for the continuation of mining at Talvivaara,” concludes Minister Vapaavuori.

“Whether this is feasible on the basis of the parent company which is currently in administration is uncertain, however, because at least at the moment the parent company does not have the necessary capital or financing. It should be emphasised that the decisions made by Talvivaara today are the company’s responsibility alone, and the State has not been able to influence them,” says Vapaavuori.

Authorised by the Cabinet Committee on Economic Policy, the Ministry of Employment and the Economy has established a Talvivaara office, which will start operating immediately, and whose duties will include coordinating activities between different authorities, monitoring the appropriate handling of environmental issues, monitoring the use of State funds and providing the necessary expert support. As a cooperation body, the Talvivaara Crisis Group, in whose work the Ministry of Employment and the Economy, the Ministry of Finance, the Ministry of the Environment, the Kainuu Centre for Economic Development, Transport and the Environment, and the Office of the Bankruptcy Ombudsman have participated, has been monitoring the issue and has been preparing for different outcomes since 31 October 2013. Minister of Economic Affairs Jan Vapaavuori has been responsible for coordinating the issue.

Further information: Laura Manninen, Special Adviser to the Minister of Economic Affairs, tel. +358 50 361 7511, Ministry of Employment and the Economy; Hannele Pokka, Permanent Secretary, tel. +358 295 250 239, Ministry of the Environment; and Petri Peltonen, Director General, tel. +358 295 063 662, Ministry of Employment and the Economy