Business view

THE mining company Talvivaara has belatedly released their financial report for the first six months of the year. They simultaneously announced a restructuring plan in an attempt to survive as a going concern. Now investors and creditors – and maybe taxpayers – need to make a decision to either cut their losses or raise the stakes.

THIS will be the third article I've written about Talvivaara. In November 2012 I used them as an example of unexpected risk in value investing. A year later, in December 2013, I recommended the company be allowed to die a bankrupt death instead of being kept on life support. At that time I wrote "I can't imagine how this story can have a happy ending." The company is still alive, but my opinion hasn't changed.

TALVIVAARA'S finances have improved over the past year. Nickel and zinc production are up, sales are up, and their losses are down. Best of all, the company actually had positive cash flow during the second quarter. Most of that was due to eating up inventory, but still: positive cash flow is positive cash flow.

THEY even managed to receive bridge financing of sorts from Nyrstar, a Belgian mining company. Nyrstar is Talvivaara's largest creditor, and they must have some hope of getting their money back or else credit wouldn't have been extended. The Belgians originally declined Talvivaara's attempt to restructure, but later changed their minds.

ALL of that is good news, but they have plenty of bad news as well. Four individuals have been charged with aggravated environmental impairment and the operating subsidiary Talvivaara Sotkamo may be fined for the infamous gypsum pond leak. The fine might be moot in any case, because the company is only clinging to life via the razor-thin credit offered by Nyrstar. They have €6 million in cash and about €10 million in available credit, which isn't going to last very long.


David J. Cord
(This email address is being protected from spambots. You need JavaScript enabled to view it.)

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