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The billion dollar mining experiment

Europe's biggest nickel mining company, Talvivaara, coaxed billions of euros from investors with rosy promises about an unproven mining technique. Then the new method failed to work as planned.

Europe’s biggest nickel mining company, the Finnish corporation Talvivaara, gathered 1.9 billion euros from national and international investors based on unrealistic promises about an inadequately tested new mining technique. The story was revealed this month by the investigative television program MOT at the Finnish Broadcasting Company YLE. 

The failures of this mining technique, known as the bio heap leaching method, are primarily responsible for Talvivaara’s plunge to the brink of bankruptcy, MOT found, despite the company’s public claims that its main problem was low nickel prices. Over 250 million euros of the money poured into Talvivaara was public funding from the Finnish state.

Talvivaara has made headlines in the Finnish media for years for a variety of reasons. The company’s huge open pit mine located in the center of Finland has had major problems with dangerous chemical leaks into the nearby lakes, and safety issues including the death of an employee due to poisonous gases.

But recently the biggest problem has been Talvivaara´s disastrous financial situation. In December it was granted a corporate reorganization to avoid bankruptcy.

The company is using a new method to extract nickel and zinc, and at MOT we got interested in how the company managed to persuade investors to believe in this method.  We were curious how the money was flowing into Talvivaara, both from Finland and from abroad. We also wanted to investigate what had gone wrong since the highly publicized opening of the mine, which was attended by no less than three Finnish ministries.

Together with the environmental journalist Juha Kauppinen, we started going through Talvivaara’s old annual reports, stock exchange releases and investor documents. While the Finnish media kept pouring out news feeds about the day-to-day situation, we decided to go back and dust off old documents, most of them publicly available.

According to confidential materials from the company’s 2006 Initial Public Offering on the stock market, which were prepared by JP Morgan and obtained by MOT, Talvivaara´s production method was marketed as environmentally friendly and profitable.

One year later, Talvivaara was listed on the London stock exchange and gathered 302 million euros from investors. The Belgian zinc company Nyrstar and the Canadian uranium company Cameco also were persuaded by Talvivaara, pumping in more than 300 million euros.  The money was for advance payments for zinc and uranium, although Talvivaara years later still doesn´t have an environmental permit to extract uranium.

In fact, the nickel miner has almost never achieved its quarterly forecasts or production targets since the company was founded. The promises of an environmentally friendly method have also been a big disappointment. During the last years, several massive leaks have been polluting the lakes in the area, the fish have partly disappeared, and officials have restricted the use of lake water for bathing.

The CEO of Talvivaara, Pekka Perä, has blamed Talvivaara’s financial problems on the low price of nickel, even recently as the company has come close to bankruptcy. But analyzing the market price of nickel and looking at the company annual reports, MOT found that the biggest problem has been low production. The reason for the low production was the bio heap leaching method was not working as expected.

The bio heap leaching method has been used earlier for gold and copper. But a Finnish biochemist, Marja Riekkola-Vanhanen, adapted this method to extract nickel in cold climates. Because of this, Mrs. Riekkola-Vanhanen was elected the 2007 scientist of the year in Finland.

For a month, we tried to get the CEO Pekka Perä in front of the camera, but with no result. Instead Mr. Perä pursuaded Marja Riekkola-Vanhanen to give an interview to MOT. So when we flew to film the mine to Kajaani, an hour flight north of Helsinki, Mrs. Riekkola-Vanhanen was on the same flight because Pekka Perä flew her to Talvivaara just for us.

In an extensive and surprisingly open interview, Riekkola-Vanhanen , the now retired former technical director of Talvivaara, told MOT about the bio heap leaching method and the risks the management took with it.

“We tested it in low scale and it proved to be efficient. But to make it profitable, we had to do it in huge scale and that´s where the problems started,” Riekkola-Vanhanen explains.

Two years ago, Marja Riekkola-Vanhanen was one of the biggest shareholders of Talvivaara. Since then she has sold most of the shares. When MOT asked why,  Riekkola-Vanhanen got embarrassed.

”I want to believe in Talvivaara, but it´s more a question of hope,” Riekkola-Vanhanen answered.

It was really hard to get people in Finland to talk about Talvivaara, because the mining company that so many had promoted as Finland´s new Nokia was in such a bad state. That´s why we decided to focus abroad and get an international perspective of Talvivaara. We talked and interviewed several international analysts and mining experts in London and in important mining countries like Canada and South Africa. 

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