Talvivaara Mining Company annual accounts review for year ended 31 December 2009

Wednesday, 24. February 2010 08:01
STOCK EXCHANGE RELEASE
24 February 2010

 Talvivaara Mining Company annual accounts review for year ended 31 December
2009



Highlights of 2009

·         Nickel sulphide deliveries to off-take partner Norilsk Nickel
Harjavalta Oy commenced in February

·         Secondary listing of Talvivaara's shares on the Helsinki Stock
Exchange was obtained in May

·         Equity placing of approximately 22.3 million shares with gross
proceeds of EUR 82.7 million was successfully completed in July

·         Decision to expand production capacity to up to 50,000 tonnes of
nickel annually in 2012 was taken in July, funded by the equity placing

·         A redesigned and upgraded crushing circuit was commissioned in
September, alleviating previous crushing issues and increasing targeted crushing
capacity to 22 million tonnes per annum

·         The Talvivaara-Murtomäki railhead was permitted and commissioned for
regular transport in September

·         Safety at the mine site remained good with 6 relatively minor Lost
Time Injuries (LTI's) to Talvivaara's personnel during the year

·         Turnover for the year EUR 7.6 million (2008: 0)

·         Operating loss EUR (54.8) million (2008: EUR (4.3) million)

·         Capital expenditure EUR 118.5 million[1] (2008: EUR 429.1 million)

·         Cash at year end EUR 11.9 million (2008: EUR 82.7 million)


Highlights since the end of the review period

·         Zinc streaming agreement with Nyrstar NV for 1.25 million tonnes of
zinc in concentrate was completed on 11 February 2010; initial purchase price
received from Nyrstar of USD 335 million

·         Project Term Loan Facility of USD 320 million was fully repaid on 11
February 2010 using the proceeds of the zinc streaming agreement

·         All nickel, zinc and foreign exchange risk hedging positions
associated with the Project Term Loan Facility were closed for net proceeds of
EUR 45 million

·         Talvivaara announced plans to recover uranium as a by-product with
anticipated future production amounting to approximately 350 tonnes per annum

·         Bioheapleaching is progressing above expectations with nickel grade in
solution exceeding 2 g/l

Key financial figures of the Group

    Q4 2009 Q4 2008 2009 2008
------------------------------------


Turnover EUR '000 4,967 - 7,571 -

Operating profit (loss) EUR '000 (31,568) 5,280 (54,776) (4,296)

Profit (loss) before taxes EUR '000 (45,082) 5,419 (75,085) (8,033)

Net profit (loss) for the period EUR '000 (33,011) 21,179 (54,958) 5,832

Earnings per share EUR (0.11) 0.08 (0.19) 0.03

Return on equity   (13.7 %) 1.5 % (13.6 %) 1.6 %

Equity-to-assets ratio   43.5 % 48.5 % 43.5 % 48.5 %

Net interest-bearing debt EUR '000 426,234 285,467 426,234 285,467

Debt-to-equity ratio   111.4 % 67.3 % 111.4 % 67.3 %

Capital expenditure EUR '000 36,462 156,056 118,514 429,086

Cash and cash equivalents at the
end of the period EUR '000 11,877 82,713 11,877 82,713

Number of employees at the end of
the period   308 239 308 239
--------------------------------------------------------------------------------


All reported figures in this release are unaudited.


CEO Pekka Perä comments: "During the last twelve months our team has worked hard
to put Talvivaara on a strong financial and operational footing as we grow into
an internationally significant base metals producer. This goal has been
reinforced by our decision to expand our metal production capacity to up to
50,000 tonnes of nickel per annum from 2012.

Operationally, technical problems in the crushing process held us up during the
early part of 2009, but were resolved with the installation of a redesigned
circuit which is sized to handle the production expansion in crushing without
further modification. During the fourth quarter our focus was on establishing a
track record of steadily increasing production levels at our metals recovery
plant. While the goal of uninterrupted operation was not quite achieved due to a
series of minor hold ups at the plant, we nevertheless demonstrated our ability
to operate the plant at large capacities, underpinning our commitment to our
2010 production targets.

Financially, our successful share placing in June supported our decision to
pursue production expansion. Our shareholder base also grew significantly with
our secondary listing in Helsinki in May, which allowed Finnish retail investors
to more easily invest in our shares.

The early part of 2009 saw some continued turbulence in the international
capital and commodities markets, but during the second half of the year a strong
upward trend was seen in base metals prices from the lows experienced in the
first quarter. Whilst we believe that a short term correction is still possible,
in the long term we remain confident in the fundamental strength of base metals
prices and demand.

Beyond the end of the year, we reached a significant milestone in Talvivaara's
history, as we monetised our zinc by-product through a streaming agreement with
Nyrstar and fully repaid our Project Term Loan Facility. This arrangement
resulted in a materially enhanced capital structure for the Company, providing
us greater flexibility and an outstanding platform from which to develop the
Company further, one of the development targets being the recovery of uranium
from the leach solution as announced earlier this month.

In production, year 2010 has started off with substantially better than budgeted
performance of the bioheapleaching process, demonstrating that the development
work carried out to improve leaching and to prevent and reverse re-precipitation
of metals in the heap is bearing fruit. This is very encouraging news for the
long term future of the operation.

I would like to thank our team for their ongoing hard work and dedication
throughout the year. Continued ramp-up of production remains our main focus, and
we continue to believe that we can deliver value for our shareholders in the
year ahead."


Enquiries:

Talvivaara Mining Company Plc               Tel. +358 20 712 9800
Pekka Perä,
CEO
Saila Miettinen-Lähde, CFO

Merlin
Tel. +44 20 7653 6620
Tom Randell
Anca Spiridon



Presentation and live webcast on 24 February 2010 at 11:00 GMT/13:00 EET

A combined presentation, conference call and live webcast on the Annual Results
will be held on 24 February 2010 at 11:00 GMT/13:00 EET at Hotel Scandic
Simonkenttä, Simonkatu 9, Helsinki, Finland. The presentation will be held in
English.

http://qsb.webcast.fi/t/talvivaara/talvivaara_2010_0224_q4/

A conference call facility will be available for a Q&A with senior management
following the presentation.
Europe & U.K Participants: +44 (0)20 7162 0025
US Participants:  +1 334 323 6201
Conference ID: 858502

Further details on the event can be found on the Talvivaara website,
www.talvivaara.com . The webcast will also be
available for viewing on the Talvivaara website from shortly after the event
until the end of December 2010.




Summary of stock exchange releases and announcements

Talvivaara has today released a summary of stock exchange releases and
announcements made in 2009 in accordance with the Finnish Securities Market Act,
Chapter 2 Section 10c. The summary is posted at www.talvivaara.com
.

Talvivaara notes that some of the information given in the releases may be out
of date.
From ramp-up challenges to pursuing production expansion

In 2009 Talvivaara focused on ramping up its production and generated its first
sales revenues. However, technical challenges in materials handling, in
particular fine crushing, delayed the production ramp-up substantially.

Realising that the crushing circuit had to be redesigned and expanded in order
to reach the targeted production levels, the Company also evaluated the
feasibility of pursuing an overall production expansion concurrently with the
materials handling upgrade. With the outcome of the evaluation positive,
Talvivaara decided to expand its production capacity from 33,000 tonnes of
nickel per annum to up to 50,000 tonnes in 2012. The ongoing investment
programme relating to the expansion was funded by a successful equity placing of
EUR 82.7 million in July 2009.

By the end of the year, the crushing issues had been largely overcome following
the installation and commissioning of a redesigned and expanded crushing circuit
in September. Also in September,
the amount of stacked ore in the bioheap and hence the volume of leach solution
was determined to be sufficient for continuous metals recovery. Subsequent to
the start-up for continuous production, the metals recovery process suffered
from some technical issues causing down time and hence affecting the production
volumes negatively. The last quarter of 2009 nevertheless showed a clear upward
trend in production, which the Company aims to maintain going forward.

Since the end of 2009, the performance of the bioheapleaching process has
improved markedly, with nickel grade in the solution fed to metals recovery
increasing from around 1.2 g/l in early January to more than2.1 g/l at the time
of this announcement. Going into 2010 the increase in grade supports the
Company's view that it can obtain the higher rates of recovery required to reach
the existing 2010 production target.

Base metal prices recover after multi-year lows seen in early 2009

As the global financial crisis unfolded, base metal prices reacted by dropping
to multi-year lows in late 2008 and the first quarter of 2009, but recovered
with the cautiously improving economic outlook during the latter half of the
year. The London Metal Exchange ("LME") cash price for nickel was at its lowest
for the year at USD 9,374/tonne in March, but reached a high of USD
20,533/tonne in August and averaged USD 14,711/tonne for the period. A similar
development was seen in zinc prices with the 2009 low of USD 1,072/tonne in
February and the high of USD 2,529/tonne at the end of December. The mean price
for zinc in 2009 was USD 1,662/tonne.

The recovery in nickel prices during the second half of 2009 took place despite
the LME stocks for the metal reaching record high levels, a phenomenon which has
been largely attributed to Chinese buying activity in early 2009. Besides the
increase in demand by the Chinese steel mills ramping up their production, the
escalation in nickel prices between April and August 2009 can also be explained
by the additional demand from Chinese speculators looking to capitalise on the
low nickel prices prevailing in the first quarter. However, underlying nickel
demand in western markets remained weak throughout the year, and the outlook for
early 2010 is also still cautious.

Nickel supply was quickly affected by the economic downturn, with primary nickel
production estimated to have fallen 9% from the year before to ca. 1,430,000
tonnes in 2009. Early in the year, almost twenty mine closures and production
cutbacks were reported along with numerous new projects being postponed or
cancelled. However, towards the end of the year several projects and mines were
restarted following the recovery in prices that started during the summer
months.

With Talvivaara's operations in the ramp-up phase and affected by technical
problems in crushing for much of the year, the unit cost of production exceeded
the prevailing market price in 2009. The Company anticipates its cash cost of
production to fall substantially in 2010 and the operations to become cash flow
generating during the latter half of the year. In the long term, Talvivaara
expects its operations to be profitable throughout the price cycle.






Financial review

Fourth quarter 2009

Talvivaara's turnover during the three months ended 31 December 2009 amounted to
EUR 5.0 million (Q4 2008: 0), equivalent to two thirds of the full year turnover
and reflecting the start of continuous metals production and substantial
progress in materials handling. However, some technical setbacks causing down
time at the metals recovery plant were experienced during the quarter, which
influenced the revenue development negatively.

The Group's other operating income from realised and unrealised gains on nickel,
zinc and USD forwards amounted to EUR 6.0 million (Q4 2008: EUR 17.2 million).
Other operating expenses, which in Q4 2009 amounted to EUR (28.6) million (Q4
2008: EUR (10.8) million), included unrealised fair value losses on biological
assets (trees) and nickel and zinc forwards held for trading.

Operating loss for Q4 2009 was EUR (31.6) million (Q4 2008: profit of EUR 5.3
million). The loss for the period amounted to EUR (33.0) million (Q4 2008:
profit of EUR 21.2 million).

Capital expenditure during the quarter totalled EUR 36.5 million (Q4 2008: EUR
156.1 million). The expenditure related primarily to the construction of heap
foundations, and the design and installation of the second production line of
the metals recovery plant. Approximately EUR 10 million of the expenditure was
incurred ahead of schedule for contracts originally scheduled for 2010: earth
works on heap foundations continued longer than expected due to a mild autumn,
and some piping installations at the metals plant were brought forward from
their original schedule in Q1 2010.

Full year 2009

Talvivaara's first sales revenues were generated in 2009 and totalled EUR 7.6
million (2008: 0). The turnover remained limited due to technical problems in
crushing, which delayed the ramp-up of production.

The Group's other operating income totalled EUR 43.1 million (2008: EUR 29.8
million) and consisted of realised (EUR 31.5 million) and unrealised (EUR 11.6
million) gains on nickel, zinc and USD forward contracts. Other operating
expenses, which amounted to EUR (61.1) million (2008: EUR (23.0) million),
included unrealised fair value losses on biological assets (trees) and nickel
and zinc forward contracts held for trading.

Employee benefit expenses including the value of employee expenses related to
the employee share option scheme of 2007 were EUR (17.7) million (2008: EUR
(8.9) million). The increase was attributable to the increased number of
personnel.

Operating loss amounted to EUR (54.8) million (2008: EUR (4.3) million).

Finance income for the year was EUR 11.5 million (2008: EUR 9.2 million) and
consisted mainly of exchange rate gains on the USD 320 million project loan
facility and interest income on bank accounts. Finance costs of EUR (31.8)
million (2008: EUR (13.0) million) related mostly to the Group's borrowings, in
particular to the project loan facility and the EUR 84.9 million convertible
bond. The transaction cost accrual of EUR 6.8 million pertaining to the project
loan facility was cancelled and recognised in the income statement due to the
early repayment of the facility in February 2010.

Loss for the year amounted to EUR (55.0) million (2008: profit of EUR 5.8
million).

The Company's total comprehensive income was EUR (124.7) million (2008: EUR
95.8 million), reflecting primarily a decrease in hedge reserves brought about
by the increase in the nickel price during 2009.

Capital expenditure during the year totalled EUR 118.5 million (2008: EUR 429.1
million). The expenditure related primarily to continued construction of the
mine and related infrastructure according to the original development plan,
including heap foundations, second production line at the metals recovery plant,
and the Talvivaara-Murtomäki railroad. The expenditure also included costs
relating to the redesign and expansion of the crushing circuit and other
investments relating to the overall production expansion. Net of the
approximately EUR 11 million expenditure on the railroad which will be
reimbursed by the State of Finland, the total capital expenditure for the year
exceeded the budgeted figure by approximately EUR 18 million. Of this, some EUR
10 million were costs originally planned for 2010 but incurred ahead of schedule
in 2009.

On the consolidated statement of financial position as at 31 December 2009,
property, plant and equipment totalled EUR 644.4 million (31 December 2008: EUR
552.5 million), with the increase since the year end 2008 attributable to
expenditure on, and capitalisation of, mine related assets according to plan.
During the financial year, the construction of the Talvivaara-Murtomäki railroad
was completed and the expansion of the crushing circuit was installed and
commissioned. Other notable changes in the Group's assets include a substantial
decrease in the fair value of derivative financial instruments, in particular
nickel and zinc forward swaps. The change was caused by the increase in nickel
and zinc prices during the reporting period as well as the maturity of some of
the forward contracts. As at 31 December 2009, the derivative financial
instruments were valued at EUR 33.1 million (31 December 2008: EUR 152.5
million).

Deferred tax assets were EUR 21.5 million (31 December 2008: liabilities of EUR
23.1 million). The change was caused by the tax losses of 2009 and the decrease
in fair value of derivative financial instruments during the reporting period.

Inventories amounted to EUR 109.5 million (31 December 2008: EUR 31.7 million)
with the increase relating mostly to ore on leach pads and work in progress,
both valued at cost. Cash and cash equivalents totalled EUR 11.9 million (31
December 2008: EUR 82.7 million).

In equity and liabilities, the invested unrestricted equity increased from EUR
320.6 million on 31 December 2008 to EUR 401.2 million on 31 December 2009 due
to an equity placing of approximately 22.3 million shares completed in July. The
hedge reserve related to nickel cash flow hedges decreased from EUR 72.3 million
on 31 December 2008 to EUR 16.6 million on 31 December 2009 due to the increase
in the market price of nickel.

Borrowings increased from EUR 368.2 million to EUR 438.1 million, reflecting
draw down of a EUR 45 million investment and working capital loan from Finnvera
Plc, draw downs of a term loan obtained for the financing of rail road
construction, and new finance lease agreements. The USD 320 million project term
loan facility was recognised in short-term liabilities because of the early
repayment of the loan in February 2010. In short-term liabilities, accounts
payable decreased by EUR 15.6 million to EUR 29.7 million reflecting the reduced
capital expenditure in 2009 compared to the year before.

Total equity and liabilities as at 31 December 2009 amounted to EUR 879.0
million (31 December 2008: EUR 874.0 million).

Currency and commodity hedges and hedge accounting

In April 2009, the Group entered into a currency hedging programme comprising
USD forwards for seven quarters from Q2 2009 through Q4 2010. The hedged amount
was EUR 175 million in total, with EUR 25 million maturing each quarter. The
forwards were executed at EUR/USD rates ranging from 1.26 to 1.28, and the
realised gain from these hedges amounted to EUR 8.0 million in 2009.

As at 31 December 2009, the Company had 12,128 tonnes of nickel and 30,559
tonnes of zinc forward swaps remaining in its commodity hedging programme
executed in 2007 and 2008 and extending through 2011. The volume weighted
average prices of the outstanding positions were USD 23,333 per tonne for nickel
and USD 1,948 per tonne for zinc.

Talvivaara applied hedge accounting to nickel hedges maturing in Q1 2010 through
Q4 2011 until 31 December 2009, when management decided to discontinue hedge
accounting. However, the underlying nickel sales forecast for the period
continue to be regarded highly probable and the cash flow hedge was considered
effective at the end of the year. Therefore, the amounts taken to hedge reserve
remain there until the hedged item impacts the income statement.

Financing

During the second quarter of 2009, Talvivaara drew down a EUR 45 million
investment and working capital loan granted by Finnvera Plc. The total
commitment of the facility is EUR 50 million, allowing capitalisation of
interest until the full commitment is utilised. In 2009, the capitalisation of
accrued interest amounted to EUR 1.2 million. The loan carries an interest of
EURIBOR 6 months + 3.00% and is repaid over a six-year period of 2013 to 2018.

Talvivaara Infrastructure Ltd drew down EUR 14.7 million, including capitalised
interest, of a EUR 45 million term loan committed to finance the construction of
the Talvivaara-Murtomäki railroad. At the end of 2009, the total drawn down
amount, including capitalised interest, was EUR 40.4 million and the railroad
had been completed and permitted for regular transport. The State of Finland is
anticipated to reimburse the cost of the railroad up to EUR 40 million (0% VAT)
in two equal instalments in 2010 and 2011.

In June 2009, the Company received a EUR 5 million reimbursement from the
Finnish Government of infrastructure investments relating to power supply and
electrification. The reimbursement was part of the overall decision by the
Finnish Parliament in 2007 to grant EUR 52 million in subsidies to support the
construction of necessary infrastructure to the Talvivaara mine, covering also
the above mentioned railroad expenses.

In July, the Company successfully closed an equity placing of 22,280,000 shares,
representing approximately 10 per cent of the number existing shares, to new and
existing institutional investors. The placing was successfully conducted through
an accelerated book-building process and priced at EUR 3.70 (GBP 3.20) per
share, raising gross proceeds of EUR 82.7 million (GBP 71.3 million). The share
issue was approved by the shareholders of the Company in the Extraordinary
General Meeting held on 6 July 2009.

Production summary

Early in 2009 it became apparent that the problems with the crushing process
would prevent Talvivaara from reaching its production targets for the year and
that giving new guidance would be difficult given the uncertainties relating to
the operating capacity of the existing crushing circuit and the commissioning
and ramp-up of the redesigned circuit. Accordingly, guidance for the year was
withdrawn and the Company focused on fixing the crushing system and preparing
for the production expansion as decided in July 2009.

The overall production figures as presented in the table below reflect the
ramp-up, which saw the last quarter showing a marked improvement over the
previous quarters and thereby establishing a clear upward trend in production
volumes which the Company aims to maintain going into 2010.

----------------------------------------------------------------
      Q4 2009 Q1-Q3 2009 2009 2008
----------------------------------------------------------------
Mining

  Blasted ore Mt 3,5 7,3 10,8 3,0

  Excavated waste Mt 1,5 2,9 4,3 1,4

Materials handling

  Stacked ore Mt 3,0 5,5 8,5 2,5

Bioheapleaching

Ore in primary heap at the
  end of period Mt 11,0 8,0 11,0 2,5

Metals recovery

  Nickel sulphide production DMT 857 668 1,525 -

  Nickel metal content t 410 325 735 -

  Zinc sulphide production DMT 3,827 1,444 5,271 -

  Zinc metal content t 2,313 820 3,133 -
----------------------------------------------------------------


The mining department performed well throughout the year, blasting 3.5 million
tonnes of ore in the last quarter and a total of 10.8 million tonnes for the
year. The corresponding figures for waste were 1.5 million tonnes and 4.3
million tonnes, respectively, bringing the strip ratio for the year to 0.4. The
mining volumes were limited through most of the year by the bottle neck in
crushing. Only during the last quarter was the mining department able to run
production at full capacity, which was further increased by the delivery and
commissioning of two additional dump trucks. For the expanded capacity of 22-24
million tonnes of ore per annum, the mining fleet will be further increased by
two dump trucks and an excavator in 2010.

In materials handling, the volume of crushed and stacked ore during the year
amounted to 8.5 million tonnes, of which 3.0 million tonnes, representing 35%,
was crushed during the last quarter. The improved performance during the last
few months of the year reflected the commissioning of the redesigned and
expanded fine crushing circuit in September. The new circuit continued to ramp
up through the end of the year and also demonstrated significantly improved
availability compared to the previous system. The full expanded crushing volume
of approximately 60,000 tonnes per day was not yet consistently achieved by the
end of the year, though, leaving some further ramp-up to be accomplished during
the first part of 2010. If the targeted full capacity on a consistent basis is
not achieved during the first quarter of 2010, two additional tertiary crushers
are likely to be installed in the circuit during the spring.

The primary crusher, which also suffered from design problems and poor
availability during the second and third quarters after having been commissioned
in February, was fitted with a new mantle in October. The new mantle with a
reduced nib angle proved to be functional and allowed discontinuation of
contractor crushing.

In bioheapleaching, heat generation throughout the summer was high, which
resulted in some of the leached nickel precipitating back in the heap. The
re-precipitated nickel was however found to be in a readily soluble form,
allowing it to be returned to circulation by flushing the heap with water. The
first section of the heap was also found to have suffered from insufficient
aeration, which contributed to the re-precipitation. Based on the findings, the
aeration system in the second section of the heap was improved, and results
already at year end were promising. During the first two months of 2010, the
leaching performance has further improved, increasing the nickel grade in
solution from around 1.2 g/l at the end of the year to above 2.1 g/l at the time
of this release.

The metals recovery process was run in campaigns until mid September, when the
amount of leach solution available for metals precipitation was determined to be
sufficient for continuous production. However, the goal of uninterrupted
production in the last quarter was not yet achieved due to technical issues
discovered at the plant during steady state operation. Although not serious,
these problems caused down time that affected the Q4 output. At 410 tonnes of
contained nickel, the last quarter production represented 56% of the full year
figure of 735 tonnes, which established a clear upward trend, albeit that the
absolute production volumes still remained low. The quality of the products was
good throughout and towards the end of the year approached target specifications
for steady state operation.

Geology - building up data for further resource increases

In 2009 the main target of the drilling campaign was the Kuusilampi open pit,
where an infill drilling programme in the southern part of the deposit was
completed during the third quarter. In the western part of Kuusilampi a
geotechnical drilling campaign was carried out in order to confirm the ground
conditions for the final pit design.

The second target for geological work was the Kolmisoppi deposit where a
resource definition drilling programme was initiated during the fourth quarter.
Based on previous diamond drilling by the Geological Survey of Finland and
Outokumpu Plc, the potential to increase the Kolmisoppi resources looked
excellent. By the year end, 13 new holes totalling 6,000 metres were completed
and preliminary results were found to be very encouraging.

In the beginning of 2009 Talvivaara set up its own drill crew which successfully
drilled approximately 11,000 metres at Kuusilampi during the year. Contractors
drilled about 5,500 metres at Kuusilampi, bringing the total metres drilled in
2009 to 22,500.

By the end of 2009, a total of 552 diamond drill holes with a total length of
approximately 105,800 metres had been drilled at Talvivaara. The area has
excellent exploration potential and diamond drilling will continue at an annual
rate of some 20,000 metres.
Research and development

Talvivaara's research and development activities focused on further optimisation
of bioheapleaching, biological iron removal from leach solution, and recovery of
additional metals from the leach solution.

Work on bioheapleaching centered on studies relating to the microbiological,
chemical and physical characteristics of the production heap, where the effects
of temperature, aeration rate, heap height, irrigation rate, irrigation solution
composition and other factors on the leaching behaviour were systematically
studied. Already, many new phenomena specific to the production scale process
have been identified and are being applied in production with promising results.

Biological iron removal from leach solution is being developed as a cost saving
enhancement to traditional iron removal using limestone. The biological method
utilises locally occurring bacteria in a fluid bed reactor and has shown
capacity to reduce limestone consumption in iron removal substantially. During
the second half of 2009, the method was successfully tested in pilot scale and
further upscaling of the process is being planned.

As announced on 9 February 2010, Talvivaara is developing a solvent extraction
method to recover uranium from the leach solution. Results of the work carried
out in 2009 have led to the conclusion that uranium can be recovered
economically and safely as yellow cake. Further process development and plant
design are being conducted in cooperation with Outotec Oyj and Norilsk Nickel
Harjavalta Oy. Subject to the necessary permits for the process being obtained,
Talvivaara intends to produce around 350 tonnes of uranium per annum in the
years to come.

Feasibility studies on manganese extraction from the leach solution continued.
Electrowinning technology was successfully employed to recover manganese metal,
manganese oxide and manganese sulphate. Any decisions on potential investment in
commercial scale manganese production are pending a partnering arrangement
relating to the production and marketing of the potential manganese products.

Permitting

Talvivaara's environmental and water permit issued in March 2007 became final
and binding through a ruling by the Supreme Administrative Court ("SAC") of
Finland in November 2008. Under the terms of the permit, compensations for loss
of property value were payable to local landowners in 2009 amounting to
approximately EUR 0.2 million.

Talvivaara's application for the extension of the area covered by the existing
mining license was approved by the Ministry of Employment and Economy in October
2006 and the decision was subsequently upheld by the SAC in October 2007. The
land surveying and redemption proceedings regarding the extension were however
appealed both on the compensations awarded and on the proceedings themselves.
The appeal on the compensations was later cancelled and the decision by
Kainuu-Koillismaa District Survey Office concerning compensations to land
owners, as paid by the Company in 2008, became final and binding on
16 April 2009.

The Ministry of Employment and Economy, the competent appeal authority on
procedural issues, gave its ruling in August 2008, dismissing all the claims and
demands asserted by the claimants. The decision by the Ministry was appealed to
the SAC, but this appeal was also cancelled in spring 2009. Consequently, the
decision concerning the extension of the mining concession became final and
binding on 14 April 2009.

During 2008-2009, Talvivaara Infrastructure Oy, a wholly-owned subsidiary of the
Company, constructed a new railhead connecting the mine site with the national
railway grid. Talvivaara Infrastructure Oy received the operating permits
allowing regular transport on the railroad from the Finnish Rail Agency on 15
September 2009 and the operating permit for an electric railroad on 27 November
2009.

Talvivaara's products are all high volume chemicals, which have to be registered
under the European Union chemicals policy REACH (Registration, Evaluation,
Authorisation and Restriction of Chemicals) by the end of 2010. Talvivaara is
currently working with several chemical consortia to have the relevant metals
and chemical industry registered within the given time limit. Talvivaara is also
actively monitoring new developments relating to EU legislation and relevant
guidelines promoting the safe handling of chemicals.
Environment, health and safety

Talvivaara continued to observe its environmental management policy based on
responsibility, transparency, and continuous improvement and assessment.

In 2009, the environmental effects of Talvivaara's operations were local and
minor. The most significant effects seen in the early part of the year were the
dust emissions generated by temporary contractor crushing arrangements. Since
the discontinuation of contractor crushing in March, the dust emissions have
substantially decreased, but the Company continues to focus on decreasing the
dust levels further. During the autumn, the smell of hydrogen sulphide
occasionally spread into the neighbouring communities due to insufficient gas
scrubbing capacity at the metals recovery plant. As with any unwanted or harmful
effect discovered, Talvivaara has actively monitored the smell and taken
corrective actions to eliminate or substantially reduce the effect.

Environmental monitoring under the environmental permit continued at an
extensive, yet slightly reduced level compared to the year before when the
effects of construction were under intensive scrutiny. Talvivaara's compliance
under the environmental permit was actively monitored by the Environmental
Centre of Kainuu as the supervising authority.

The environmental security placed for future restoration of the area and
monitoring obligations amounted to EUR 13.8 million by the end of the year.

Talvivaara is preparing its environmental processes to meet the ISO 14001
environmental standard. Audit of the environmental system is targeted for Q4
2010.

                      Safety is of key importance to Talvivaara and its
contractors. Safety practices at the mine site are based on instructions and
guidelines approved by the management and are in accordance with the Finnish
industrial safety legislation. Safety training is provided to all Talvivaara
personnel as well as to employees of contractors.

In line with its aim to continuously improve its safety record, Talvivaara
established a work group safety challenge in February 2009. The challenge has
proven effective in promoting a safe working environment and safety awareness
amongst the employees, with only three relatively minor Lost Time Injuries
(LTI's) to Talvivaara personnel since the start of the challenge and six in
total LTI's during the year. The safety rating at the end of 2009 was 11 LTI's
per million man hours.

Risks and uncertainties

In line with current corporate governance guidelines on risk management,
Talvivaara carries out an ongoing process endorsed by the Board of Directors to
identify risks, measure their impact against certain assumptions and implement
the necessary proactive steps to manage these risks.

Talvivaara's operations are affected by various risks common to the mining
industry, such as risks relating to the development of Talvivaara's mineral
deposits, estimates of reserves and resources, infrastructure risks, and
volatility of commodity prices. There are also risks related to currency
exchange ratios, management and control systems, historical losses and
uncertainties about the future profitability of Talvivaara, dependence on key
personnel, effect of laws, governmental regulations and related costs,
environmental hazards, and risks related to Talvivaara's mining concessions and
permits.

In the short term, Talvivaara's key operational risks relate to the ongoing
ramp-up of operations. While the Company has demonstrated that all of its
production processes work and can be operated on an industrial scale, the rate
of ramp-up may still be subject to risk factors that are currently unknown or
beyond the Company's control.

The market price of nickel has remained relatively stable at USD 17,000 -
20,000 per tonne for the last six months. In view of the historical volatility
in nickel price and the relatively modest industrial demand for nickel in the
western economies for the time being, there may in the Company's view still be
downward pressure on the prices in the short term. Talvivaara is, as of February
2010, unhedged against variations in metal prices. Full or substantially full
exposure to nickel prices is in line with Talvivaara's strategy and supported by
the Company's view that it can operate the Talvivaara mine profitably also
during the lows of commodity price cycles.

Talvivaara's revenues are almost entirely in US dollars, whilst the majority of
the Company's costs are incurred in Euro. Potential strengthening of the Euro
against the US dollar could thus have a material adverse effect on the business
and financial condition of the Company. Talvivaara is, as of January 2010,
unhedged against the currency exchange risk relating to the US dollar. In view
of the recent weakness in Euro, the Company considers its unhedged position
justified for the time being. However, the Company anticipates hedging against
currency exchange volatility at least on a case by case basis going forward.

Personnel

Recruitment of new qualified personnel continued to be Human Resources' main
focus during the financial year, with the total number of employees increasing
from 239 to 308. As in the previous year, recruitment focused on production
personnel. Towards the end of 2009, a production driller's training programme
was initiated in cooperation with the Kainuu Employment and Economic Development
Centre and North Karelia College. Persons completing the course will be hired as
drillers in the mining department during the spring of 2010.

The average age of Talvivaara's personnel is 38.5 years, and the age
distribution of employees is comparable to the industry average in Finland. In
its recruitment process, Talvivaara has sought to maintain a healthy staff age
structure, in spite of the exceptionally vigorous rate of recruitment. Although
the mining industry has conventionally been male-dominated, Talvivaara seeks to
hire employees representing both genders, where possible.

Personnel turnover grew during the reporting year. Turnover mainly affected
newly recruited employees and did not disturb the Company's operations. Turnover
was 10.6% (2008: 2.8%) in the Talvivaara Mining Company and 8.4% (2008: 4.6%) in
Talvivaara Sotkamo Ltd.

Social and economic impact of the project

Talvivaara's positive economic impact on the Kainuu region continued in 2009.
Currently, more than 450 people work daily in the mine area, and the number was
substantially higher during the summer months, when the expanded crushing
circuit was being constructed. Talvivaara's indirect impact on employment can be
seen in the form of increased demand for various services in the region.

At the end of the financial year, the unemployment rate in the entire Kainuu
region was 16.2%. In Sotkamo, where the mine is located, the unemployment rate
was 12.0%. Overall, Kainuu was the only Finnish region whose level of
unemployment did not rise in 2009.

Talvivaara continued to enjoy good cooperation with local and national
authorities relating, amongst others, to recruiting and training.

Shares and shareholders

The number of shares issued and outstanding in 2009 was 245,176,718, increased
by 22,280,000 since 2008 as a result of an equity issue completed on 6 July
2009. Including the effect of the convertible bond of 14 May 2008 and the Option
Scheme of 2007, the authorised full number of shares of the Company amounted to
263,669,291 at the end of 2009.

As at 31 December 2009, the shareholders who held more than 5% of the shares and
votes of Talvivaara were Pekka Perä (23,29 %), Varma Mutual Pension Insurance
Company (8.61%) and BlackRock Investment Management Ltd (6.31%).

Talvivaara obtained a secondary listing of its shares on the Helsinki Stock
Exchange (Nasdaq OMX Helsinki Ltd) on 11 May 2009.




Share options

By resolution passed at the general meeting of shareholders on 28th February
2007, the Company resolved to issue free stock options to the key personnel of
the Company and its subsidiaries entitling them, after the split of the
Company's shares 1:70, to subscribe for a maximum of 6,999,300 new shares in the
Company (2007 Option Scheme). Pursuant to the terms and conditions of the 2007
Option Scheme, the Board of Directors shall decide upon the distribution of the
stock options.

During 2009, the Board of Directors, based on the recommendation of the
Remuneration Committee, allocated 30,000 2007B options and 988,000 2007C
Options, giving an entitlement to subscribe for a total of 1,018,000 new shares
in the Company, to the personnel of Talvivaara and its subsidiaries. Of the
options allocated since 2007, 108,000 2007B Options entitling to subscribe for
108,000 shares were returned back to the Company during 2009. At the end of
2009, the number of options available for allocation under the 2007 Option
Scheme was as follows: 104,600 2007A Options, 197,100 2007B Options and
1,345,100 2007C Options. The voting rights of the shares to be issued against
the outstanding share options amount to 2.1% of the total share capital.

Events after the review period

Talvivaara Sotkamo Ltd issued on 22 January 2010 a EUR 5 million convertible
loan to Outokumpu Mining Oy, the 20% minority shareholder in the company. The
lender has agreed to fully convert the loan into shares in Talvivaara Sotkamo Oy
unless the borrower has repaid the facility prior to the conversion period which
starts on 22 January 2012 and ends on 21 January 2013. In the event the loan is
converted, Talvivaara Mining Company will simultaneously convert a pro rata
amount of EUR 20 million in existing intragroup loans granted to Talvivaara
Sotkamo Oy, thereby making the conversion non-dilutive to both shareholders. The
loan carries a stepwise increasing interest of 5.0% to 12% until maturity on 21
January 2013.

Talvivaara Sotkamo Ltd issued on 1 February 2010 a hybrid capital loan of EUR
25 million to Varma Mutual Pension Insurance Company. The unsecured perpetual
step-up hybrid facility carries an interest of 12.0% until the first anniversary
of the issue date, thereafter 15.0% until the third anniversary of the issue
date, and 18.0% after the third anniversary until redemption. The borrower is
entitled to fully or partially redeem the facility at any time after six months
has passed from the issue date. The facility is recognised in the issuer's
equity under IFRS.

The Company announced on 9 February 2010 that it is planning to initiate the
recovery and exploitation of uranium, obtained as a by-product of other metals,
in the form of a uranium intermediate, yellow cake. Talvivaara plans to recover
uranium from its main leaching process by using a safe and technically simple
solvent extraction process which is widely applied to metals recovery. The
planned investment in the solvent extraction plant is estimated at approximately
EUR 30 million. Annual production costs are estimated at approximately EUR 2
million and the annual production volume is estimated at approximately 350
tonnes. Talvivaara is currently in discussions with leading companies in the
industry regarding a potential cooperation for this project, after which its
final financing and operating model will be determined. The planned uranium
production is subject to necessary permits, including an approval by the
Government of Finland. Permit applications are currently being prepared.

Talvivaara Sotkamo Oy completed a long-term zinc streaming agreement with
Nyrstar NV ("Nyrstar") on 11 February 2010. Under the terms of the agreement,
Talvivaara will deliver all of its zinc in concentrate production to Nyrstar
until a total of 1,250,000 metric tonnes of zinc in concentrate has been
delivered. Nyrstar has paid a purchase price of USD 335 million for the zinc
stream. In addition, Nyrstar will pay Talvivaara an extraction and processing
fee of ERU 350 per tonne of zinc in concentrate delivered (with escalators in
relation to prices of elemental sulphur and propane). The parties have also
agreed the following price participation:
·         until the later of the seventh anniversary of the agreement or
delivery of 600,000 tonnes of zinc in concentrate, Nyrstar will pay to
Talvivaara 10% of the LME zinc price exceeding USD 2,500 per tonne (up to USD
3,000 per tonne), and 30% of the LME zinc price exceeding USD 3,000 per tonne;
and
·         thereafter, Nyrstar will pay to Talvivaara 30% of the excess of the
LME zinc price above the processing fee of EUR 350 per tonne of zinc in
concentrate.

Nyrstar has also agreed to supply to Talvivaara up to 150,000 tonnes of
sulphuric acid per annum for use in Talvivaara's leaching process during the
period of supply of the zinc in concentrate.

Using the USD 335 million proceeds of the zinc streaming agreement, Talvivaara
Sotkamo Ltd completed early repayment of its USD 320 million Project Term Loan
to the Facility. In addition, Talvivaara closed all of its commodity and foreign
exchange risk hedging positions, realising additional net proceeds of EUR 45
million. The Company discontinued hedge accounting relating to its nickel
forward swaps effective 31 December 2009.

Short-term outlook

With all production processes operational and developing positively, Talvivaara
looks into continuing its production ramp-up according to plan. The recent
increase in nickel grade in leach solution supports the Company's view that it
can obtain the higher rates of recovery required to reach its existing 2010
production target.

While some uncertainty relating to the development of nickel price in the short
term remains, the risk of the price falling substantially from its present level
is in the Company's view relatively limited. Provided the nickel price stays in
the recent USD 17,000 - 20,000 per tonne range, Talvivaara expects to turn cash
flow positive during the second half of 2010.

Board of Directors proposal for profit distribution

The Board of Directors is proposing to the Annual General Meeting to be held on
15 April 2010 that no dividend is declared in respect of the year 2009.

































CONSOLIDATED INCOME STATEMENT

Unaudited Unaudited Unaudited Audited
  three three twelve twelve

  months to months to months to months to

(all amounts in EUR
'000) 31 Dec 09 31 Dec 08 31 Dec 09 31 Dec 08
------------------------------------------------------------


Turnover 4,967 - 7,571 -



Other operating
income 5,966 17,242 43,118 29,810

Changes in
inventories of
finished goods and
work in progress 28,410 20,233 75,587 24,006

Materials and
services (24,889) (14,497) (65,156) (20,407)

Employee benefit
expenses (6,064) (1,624) (17,695) (8,910)

Depreciation,
amortization,
depletion and
impairment charges (11,384) (5,294) (37,061) (5,756)

Other operating
expenses (28,574) (10,780) (61,140) (23,039)


------------------------------------------------------------
Operating profit
(loss) (31,568) 5,280 (54,776) (4,296)



Finance income 82 6,420 11,526 9,219

Finance cost (13,596) (6,281) (31,835) (12,956)
------------------------------------------------------------
Finance cost (net) (13,514) 139 (20,309) (3,737)



Loss before income
tax (45,082) 5,419 (75,085) (8,033)



Income tax expense 12,071 15,760 20,127 13,865


------------------------------------------------------------
Profit (loss) for
the period (33,011) 21,179 (54,958) 5,832



Attributable to:

Equity holders of
the Company (26,852) 18,017 (45,267) 7,042

Minority interest (6,159) 3,162 (9,691) (1,210)
------------------------------------------------------------
  (33,011) 21,179 (54,958) 5,832



Earnings per share
for profit (loss)
attributable to the
equity holders of
the Company
(expressed in € per
share)

Basic and diluted (0.11) 0.08 (0.19) 0.03






CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Unaudited Unaudited Unaudited Audited
  three three twelve twelve

  months to months to months to months to

(all amounts in EUR 31 December 31 December 31 December 31 December
'000) 2009 2008 2009 2008
--------------------------------------------------------


Profit (loss) for the
period (33,011) 21,179 (54,958) 5,832



Other comprehensive
income,

items net of tax

Available-for-sale
financial assets - - - (451)

Cash flow hedges (5,877) 47,777 (69,705) 90,414


--------------------------------------------------------
Other comprehensive
income, net of tax (5,877) 47,777 (69,705) 89,963


--------------------------------------------------------
Total comprehensive
income (38,888) 68,956 (124,663) 95,795



Attributable to:

Equity holders of the
Company (31,553) 56,237 (101,031) 78,922

Minority interest (7,335) 12,719 (23,632) 16,873
--------------------------------------------------------
  (38,888) 68,956 (124,663) 95,795



































CONSOLIDATED STATEMENT OF FINANCIAL POSITION

  Unaudited Audited

  31 Dec 31 Dec

(all amounts in EUR '000) 2009 2008

ASSETS

Non-current assets

Property, plant and equipment 644,356 552,459

Biological assets 6,614 8,152

Intangible assets 7846 7,774

Deferred tax assets 21,548 -

Derivative financial instruments - 116,004

Other receivables 7,582 9,635

  687,946 694,024



Current assets

Inventories 109,512 31,691

Trade receivables 3,913 -

Other receivables 15,477 24,721

Derivative financial instruments 50,244 40,805

Cash and cash equivalent 11,877 82,713

  191,023 179,930

Total assets 878,969 873,954



EQUITY AND LIABILITIES



Equity attributable to equity holders of the parent

Share capital 80 80

Share premium 8,086 8,086

Hedge reserve 16,567 72,332

Other reserves 417,448 334,019

Retained earnings (71,368) (26,101)

  370,813 388,416

Minority interest in equity 11,784 35,470

Total equity 382,597 423,886



Non-current liabilities

Borrowings 194,796 367,955

Derivative financial instruments 3,110 1,985

Deferred tax liabilities - 23,070

Provisions 1,594 944

  199,500 393,954

Current liabilities

Borrowings 243,315 224

Trade payables 29,669 45,283

Other payables 9,875 8,294

Derivative financial instruments 14,013 2,279

Provisions - 34

  296,872 56,114

Total liabilities 496,372 450,068

Total equity and liabilities 878,969 873,954



CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

A. Share Capital
B. Share Premium
C. Invested unrestricted equity
D. Hedge Reserves
E. Other Reserves
F. Retained Earnings
G. Total
H. Minority interest
I. Total Equity



  A B C D E F G H I

Balance at 1
January 2008 16 8,086 320,671 - 1,106 (33,423) 296,456 18,591 315,047




Total
comprehensive
income for
1-9/2008 - - - 72,332 (451) 7,043 78,924 16,872 95,796



Transfers
within equity,
change of the
corporate form 64 - (64) - - - - - -

Employee share
option
scheme

- value of
employee
services - - - 1,863 - - 1,863 - 1,863

Convertible
bond,
equity
component - - - 10,894 - - 10,894 - 10,894

Restatement to
capital
expenditure,
which
relates to
previous year - - - - - 278 278 - 278

Minority
interest
arising
from
subsidiary - - - - - 1 1 - 1
-----------------------------------------------------------------
Balance at 31
December 2008 80 8,086 320,607 72,332 13,412 (26,101) 388,416 35,470 423,886





Balance at 1
January 2009 80 8,086 320,607 72,332 13,412 (26,101) 388,416 35,470 423,886



Total
comprehensive
income for       (55 (101 (23 (124
2009 - - - 765)   (45 267) 032) 632) 664)

Share issue,
net of
transaction
costs - - 82,691 - - - 82,691 - 82,691

External costs
directly
attributable
to

The issue of
new shares - - (2,050) - - - (2,050) - (2,050)

Acquisition of
subsidiary,
Hyena
Holding AB - - - - - - - (54) (54)

Employee share
option scheme

- value of
employee
services - - - - 2,788 - 2,788 - 2,788
-----------------------------------------------------------------
Balance at 31
December 2009 80 8,086 401,251 16,567 16,200 (71,368) 370,813 11,784 382,597









CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited Unaudited Unaudited Audited
    three three twelve twelve

    months to months to months to months to

(all amounts in EUR '000) 30 Dec 09 30 Dec 08 30 Dec 09 31 Dec 08
-----------------------------------------------------


Cash flows from operating
activities



Profit (loss) for the
period (33,011) 21,179 (54,958) 5,832

Adjustments for

  Tax (12,071) (15,760) (20,127) (13,865)

Depreciation and
  amortization 11,384 5,294 37,061 5,756

Other non-cash income
  and expenses (2,482) 2,350 845 4,780

  Interest income (82) (6,420) (11,526) (9,219)

Fair value gains on
financial assets at fair
value through profit or
  loss 24,701 (17,192) 27,507 (24,796)

  Interest expense 13,596 6,281 31,835 12,956
-----------------------------------------------------
    2,035 (4,268) 10,637 (18,556)

Change in working capital

Decrease(+)/increase(-) in
other receivables (7,259) (6,955) 2,055 5,582

Decrease (+)/increase (-)
in inventories (26,699) (26,888) (77,821) (31,691)

Decrease(-)/increase(+) in
trade and other payables 7,651 5,103 (16,421) 23,773
-----------------------------------------------------
Change in working capital (26,307) (28,740) (92,187) (2,336)


-----------------------------------------------------
    (24,272) (33,008) (81,550) (20,892)



Interest and other finance
cost paid (6,186) (2,613) (22,318) (7,468)

Interest income 391 8,625 3,821 9,581


-----------------------------------------------------
Net cash used in operating
activities (30,067) (26,996) (100,047) (18,779)



Cash flows from investing activities



Acquisition of subsidiary,
net of cash acquired - - (54) -

Purchases of property,
plant and equipment (35896) (155,385) (117,738) (427,187)

Purchases of biological
assets 0 - (35) (26)

Purchases of intangible
assets (566) (671) (741) (1,873)

Proceeds from sale of
property, plant and
equipment - - 9 -

Proceeds from sale of
biological assets 169 456 273 707

Proceeds from sale of
intangible assets - - 49 -

Proceeds from government
grant related to tangible
assets - - 5,000 -

Proceeds from government
grant related to
intangible assets 215 (1) 228 203

Proceeds from sale of
available for sale
financial assets - - - 26,356

Purchases of derivative
financial instruments - - - (1,371)

Proceeds from sale of
financial assets at fair
value through

profit or loss - - - 1,440
-----------------------------------------------------
Net cash used in investing
activities (36,0678) (155,601) (113,009) (401,751)



Cash flows from financing
activities

Proceeds from share issue
net of transaction costs (3) - 80,641 -

Proceeds from
interest-bearing
liabilities 10,567 192,274 63,924 396,734

Payment of
interest-bearing
liabilities (1,166) (20,000) (2,345) (20,000)

Capital investment by
minority shareholders - 8 - 8


-----------------------------------------------------
Net cash generated in
financing activities 9,398 172,282 142,220 376,742



Net (decrease)/increase in
cash and bank overdrafts (56,747) (10,315) (70,836) (43,788)



Cash and bank overdrafts
at beginning of the period 68,624 93,028 82,713 126,501
-----------------------------------------------------
Cash and bank overdrafts
at end of the period 11,877 82,713 11,877 82,713




NOTES
1. Basis of preparation

This annual accounts bulletin has been prepared in compliance with IAS 34.

The interim financial information set out herein has been prepared on the same
basis and using the same accounting policies as were applied in drawing up the
Group's statutory financial statements for the year ended 31 December 2008,
added with the following changes.

Trade receivables

Trade receivables are amounts due from customers for products sold in the
ordinary course of business. If collection is expected in one year or less, they
are classified as current assets. If not, they are presented as non-current
assets.

Trade receivables are recognised initially at fair value and are subsequently
measured at amortised cost reduced by any provision for impairment. A provision
for impairment of trade receivables is established when there is objective
evidence that the Group will not be able to collect all amounts due. Any
impairment is recognised in the income statement within operating expenses. When
a trade receivable is uncollectable, it is written off against the allowance
account. Subsequent recoveries of amounts previously written off are credited
against operating expenses in the income statement.

Revenue recognition

Revenue is recognised, net of treatment charges, foreign exchange gains and
losses resulting from the settlement and any applicable sales taxes, from a sale
when evidence of an arrangement exists, the price is determinable, the product
has been delivered, the title has been transferred to the customer and
collection of the sales price is reasonably assured. Most sales are being priced
in US dollars and as delivered duty unpaid (DDU).

A large proportion of Group production is sold under long term contracts, but
sales revenue is only recognised on individual sales when persuasive evidence
exists that all of the following criteria are met:
  • all material risks and rewards of ownership have been transferred to the
    buyer;
  • there is no continuing managerial involvement to the degree usually
    associated with ownership or effective control over goods sold;
  • the amount of revenue can be measured reliably;
  • the costs incurred or to be incurred in respect of the sale can be measured
    reliably; and
  • the flow of future economic benefits is probable.

    Most products are "provisionally priced", i.e. the sales price is subject to
    final adjustment at the end of a quotational period. The quotational period is a
    time frame during which the final sales price is determined. The principal risks
    associated with recognition of sales on a provisional basis include metal price
    fluctuations between the date initially recorded and the date of final
    settlement. If a significant decline in metal prices occurs between the
    provisional pricing date and the final settlement date, it is reasonably
    possible that the Group could be required to return a portion of the sales
    proceeds received based on the provisional invoice.

    Sales are initially recorded based on 100% of the provisional sales prices.
    Until final settlement occurs, adjustments to the provisional sales prices are
    made to take into account the mark-to-market changes based on the forward prices
    for the estimated month of settlement. These adjustments are made at the end of
    a reporting period e.g. financial year or quarter. For this purpose, the selling
    price can be measured reliably for those products, for which there exists an
    active and freely traded commodity market such as the London Metals Exchange.
    The marking to market of provisionally priced sales contracts is recorded as an
    adjustment to sales revenue. For changes in metal quantities upon receipt of new
    information and assay, the provisional sales quantities are adjusted as well.





    2. Property, plant and equipment

    Machinery Other
    and Construction Land and tangible
     (all amounts in EUR '000) equipment in progress buildings assets Total
    ---------------------------------------------------
    Gross carrying amount
    at 1 Jan 2008 440 121,626 4,937 3,481 130,484

    Additions 5,143 412,651 5,027 5,579 428,400

    Disposals - - - - -

    Transfers 126,715 (404,866) 155,101 123,050 -
    ---------------------------------------------------
    Gross carrying amount
    at 31 Dec 2008 132,297 129,412 165,065 132,111 558,884
    ---------------------------------------------------


    Accumulated depreciation
    and impairment losses

    at 1 Jan 2008 66 - 700 - 766

    Depreciation for the year 2,102 - 1,333 2,224 5,659
    ------------------------------------------------------------------------------
    Accumulated depreciation
    and impairment losses
    ---------------------------------------------------
    at 31 Dec 2008 2,168 - 2,033 2,224 6,425
    ---------------------------------------------------


    Carrying amount at
    1 January 2008 374 121,626 4,237 3,481 129,718
    ---------------------------------------------------
    Carrying amount at
    31 Dec 2008 130,129 129,412 163,031 129,887 552,458



    Gross carrying amount at
    1 Jan 2009 132,297 129,412 165,065 132,111 558,884

    Additions 20,049 101,709 820 11,045 133,623

    Disposals - - (57) (45) (102)

    Government grants (2,494) - (480) (2,025) (5,000)

    Transfers 60,056 (179,449) 57,689 61,705 -
    ---------------------------------------------------
    Gross carrying amount at
    31 Dec 2009 209,907 51,671 223,036 202,791 687,405
    ---------------------------------------------------


    Accumulated depreciation
    and impairment losses

    at 1 Jan 2009 2,168 - 2,033 2,224 6,425

    Depreciation for the year 14,781 - 8,197 13,646 36,623
    ------------------------------------------------------------------------------
    Accumulated depreciation
    and impairment losses
    ---------------------------------------------------
    at 31 Dec 2009 16,949 - 10,230 15,870 43,048
    ---------------------------------------------------


    Carrying amount at
    1 Jan 2009 130,129 129,412 163,031 129,887 552,458
    ---------------------------------------------------
    Carrying amount at
    31 Dec 2009 192,958 51,671 212,806 186,921 644,356







    3. Inventories

     (all amounts in EUR '000) 2009 2008
    ----------------
    Raw materials and consumables 9,919 6,655

    Ore on leach pads 57,727 22,965

    Work in progress 39,403 1,041

    Finished products 2,464 -

    Advance payments - 1,030
    ----------------
    Inventories total 109,512 31,691



    4. Trade receivables

     (all amounts in EUR '000) 2009 2008
    ------------


    Trade receivables 3,913 -

    Less: provision for impairment of trade receivables - -
    ------------
      3,913 -






    5. Derivative financial instruments

     (all amounts in EUR '000) 2009 2008
    ----------------------------------------
      Assets Liabilities Assets Liabilities



    Nickel forwards - cash flow hedges 38,213 - 135,355 -

    Nickel forwards - held for trading 953 - 3,301 -

    Zinc forwards - held for trading - 14,013 18,153 -

    Interest rate swaps - held for trading - 3,110 - 1,985

    Currency forwards - held for trading 11,078 - - -

    Currency options - held for trading - - - 2,279
    ----------------------------------------
    Total 50,244 17,123 156,809 4,264





      2009  2008
    ----------------------------------------
      Assets Liabilities Assets Liabilities



    Derivative financial instruments 50,244 17,123 156,809 4,264
    ----------------------------------------
    Total 50,244 17,123 156,809 4,264



    Less non-current portion

    Nickel forwards - cash flow hedges - - 101,797 -

    Zinc forwards - held for trading - - 14,207 -

    Interest rate swaps - held for trading - 3,110 - 1,985

    Current portion 50,244 14,013 40,805 2,279






    6. Borrowings

     (all amounts in
      EUR '000) Carrying amount Fair value

    Non-current 2009 2008 2009 2008
    ---------------------------------
    Capital loans 1,405 1,405 1,405 1,405

    Investment and
    Working Capital loan 45,417 - 45,417 -

    Project Term
    Loan Facility - 229,935 - 229,935

    Senior Unsecured
    Convertible Bonds 75,477 72,842 75,477 72,842

    Railway Term
    Loan Facility 19,861 25,461 19,861 25,461

    Finance lease
    liabilities 15,305 1,694 15,305 1,694

    Interest Subsidy
    Loans 4,187 4,182 4,187 4,182

    Other 33,143 32,436 33,143 32,436
    ---------------------------------
      194,796 367,955 194,796 367,955
    ---------------------------------


    Current

    Project Term
    Loan Facility 222,130 - 222,130 -

    Railway Term
    Loan Facility 19,898 - 19,898 -

    Finance
    lease liabilities 1,287 200 1,287 200

    Other - 25 - 25
    ---------------------------------
      243,315 224 243,315 224
    ---------------------------------

    ---------------------------------
    Total borrowings 438,111 368,179 438,111 368,179

























    KEY FIGURES OF THE GROUP

    Three Three Twelve Twelve
    months months months months
        to to to to

        31 Dec 09 31 Dec 08 31 Dec 09 31 Dec 08
    -------------------------------------------------


    EUR
    Turnover '000 4,967 0 7,571 0



    Operating
    profit EUR
    (loss) '000 (31,568) 5,280 (54,776) (4,296)



    Profit(loss) EUR
    before tax '000 (45,082) 5,419 (75,085) (8,033)



    Profit(loss) EUR
    for the period '000 (33,011) 21,179 (54,958) 5,832



    Return on
    equity   (13.7%) 1.5% (13.6%) 1.6 %



    Equity-to
    assets ratio   43.5% 48.5% 43.5% 48.5 %



    Net interest EUR
    bearing debt '000 426,234 285,467 426,234 285,467



    Debt-to
    equity
    ratio   111.4% 67.3% 111.4% 67.3 %



    Capital EUR
    expenditure '000 36,462 156,056 118,514 429,086



    Research &
    development EUR
    expenditure '000 261 181 261 181



    Property,
    plant and EUR
    equipment '000 644,356 552,458 644,356 552,458



    Derivative
    financial EUR
    instruments '000 33,121 152,545 33,121 152,545



    EUR
    Borrowings '000 438,111 368,179 438,111 368,179



    Cash and
    cash
    equivalents
    at the end EUR
    of the period '000 11,877 82,713 11,877 82,713





    Three Three Twelve Twelve
    months months months months
        to to to to

    Share-related
    key figures  31 Dec 09 31 Dec 09 31 Dec 09 31 Dec 08
    -------------------------------------------------


    Earnings per
    share EUR (0.11) (0.03) 0.08 0.03



    Equity per
    share EUR 1.51 1.74 1.51 1.74



    Development
    of share
    price at
    London
    Stock
    Exchange

    Average
    trading
    price1 EUR 4.21 1.91 3.57 3.64

      GBP 3.81 1.61 3.18 2.90



    Lowest
    trading
    price1 EUR 3.89 1.16 1.45 1.22

      GBP 3.52 0.98 1.29 0.98



    Highest
    trading
    price1 EUR 4.54 2.86 4.68 5,64

      GBP 4.11 2.40 4.17 4,49



    Trading
    price at
    the end of
    the period2 EUR 4.35 1.25 4.35 1,25

      GBP 3.86 1.19 3.86 1,190



    Change
    during the
    period   1.7 % (49.4 %) 224.6 % (60.3 %)



    Market
    capitalization
    at the end
    of the EUR
    period3 '000 1,066,454 278,475 1,066,454 278,475

    GBP
      '000 947,118 265,247 947,118 265,247



    Development
    in trading
    volume

    Trading 1000
    volume shares 34,182 21,317 153,421 84,780

    In relation to
    weighted
    average
    number of
    shares   14.6 % 9.6 % 65.6 % 38.0 %



    Development
    of share
    price at OMX
    Helsinki

    Average
    trading price EUR 4.24   4.21



    Lowest
    trading price EUR 3.95   3.05



    Highest
    trading price EUR 4.50   4.86



    Trading price
    at the
    end of the
    period EUR 4.33   4.33



    Change
    during
    the period   3.6 %   38.3 %



    Market
    capitalization
    at the end of EUR
    the period '000 1,061,615   1,061,615



    Development
    in trading
    volume

    Trading 1000
    volume shares 26,626   113,077

    In relation to
    weighted
    average
    number of
    shares   11.4 %   48.4 %



    Adjusted
    average
    number of
    shares   233 762 033 222 896 718 233 762 033 222 896 718



    Fully Diluted
    average
    number
    of shares   233 762 033 222 896 718 233 762 033 223 045 994



    Number of
    shares at
    the end of
    the period   245 176 718 222 896 718 245 176 718 222 896 718



    (1) )Trading price is calculated on the average of EUR/GBP exchange rates
    published by the European Central Bank during the period
    (2)) Trading price is calculated on the EUR/GBP exchange rate published by the
    European Central Bank at the end of the period
    (3)) Market capitalization is calculated on the EUR/GBP exchange rate published
    by the European Central Bank at the end of the period











     Employee-related key figures

    Three Three Twelve Twelve
      months to months to months to months to

      31 Dec 09 31 Dec 08 31 Dec 09 31 Dec 08
    -----------------------------------------
     EUR'000

    Wages and salaries 4,964 1,372 14,876 7,619

    Average number
    of employees 287 237 272 178

    Number of employees at
    the end of the period 308 239 308 239



    Three Three Twelve Twelve
      months to months to months to months to

    Other figures 31 Dec 09 31 Dec 08 31 Dec 09 31 Dec 08
    -----------------------------------------


    Share options outstanding
    at the end of the period 5,352,500 4,442,500 5,352,500 4,442,500

    Number of shares to be
    issued against the

    outstanding share options 5,352,500 4,442,500 5,352,500 4,442,500

    Rights to vote of shares to
    be issued against the

    outstanding share options 2.1 % 2.0 % 2.1 % 2.0 %




    Key financial figures of the Group



    Return on equity Profit (loss) for the period/
    ------------------------------------------------------
    (Total equity at the beginning of period +
      Total equity at the end of period)/2



    Equity-to-assets ratio Total equity /
    ------------------------------------------------------
      Total assets



    Net interest-bearing debt Interest-bearing debt - Cash and cash equivalent



    Debt-to-equity ratio Net interest-bearing debt/
    ------------------------------------------------------
      Total equity



    Share-related key figures



    Profit (loss) attributable to equity holders of the
    Earnings per share Company/
    ------------------------------------------------------
      Adjusted average number of shares



    Equity attributable to equity holders of the
    Equity per share Company/
    ------------------------------------------------------
      Adjusted average number of shares



    Market capitalization at Number of shares at the end of the period * trading
    the end of the period price at the end of the period



    [1] Includes EUR 11 million expenditure on the Talvivaara-Murtomäki railhead to
    be reimbursed by the State of Finland.


    [HUG#1387845]
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    Author:
    Hugin
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