Net sales in January–September 2020 totalled EUR 234.6 million – EBITDA decreased due to maintenance shutdown

(The financial data from Terrafame Ltd presented in this factsheet are unaudited FAS figures. Unless otherwise stated, the figures in parentheses refer to the corresponding period of the previous year.)

January–September 2020 in brief

• Nickel production decreased by 4.3 percent and was at 20,141 (21,050) tonnes. Zinc production decreased by 5.5 per cent to 40,063 (42,377) tonnes.
• The average price of nickel in the London Metal Exchange decreased by 2.5 per cent during the review period to USD 13,069 (13,407) per tonne.
• The average price of zinc in the London Metal Exchange decreased by 17.5 per cent during the review period to USD 2,145 (2,602) per tonne.
• Net sales for the review period decreased by 3.7 percent from the previous year and came to EUR 234.6 (243.6).
• Net sales were mainly impacted by the decrease in production volumes. In addition to normal maintenance tasks, tie-in connections between the current metals production and the battery chemicals plant were executed during the shutdown. Deliveries have not been impacted by the coronavirus pandemic.
• Net sales in July-September decreased by 39.5 per cent year-on-year and came to EUR 62.0 (102.4) million. The very high net sales in the comparison period were supported by the steep rise in the price of nickel in July-August 2019.
• EBITDA for the review period came to EUR 6.1 (31.3) million accounting for 2.6 (12.8) per cent of net sales. EBITDA decreased due to the longer than normal maintenance shutdown in Q3.
• The operating profit for the period came to EUR -23.7 (3.5) million.
• Free cash flow from operations was EUR -25.9 (-28.3) million.
• The combined 12-month LTIFR of Terrafame and its partner companies was 10.9 (12.2).
• During the review period, the coronavirus pandemic did not affect Terrafame's operations and the construction of the battery chemicals plant has progressed as planned. Terrafame has a dedicated internal committee which continues to regularly handle topics related to the coronavirus outbreak to ensure the continuity of operations in exceptional circumstances.
   

1) Free cash flow after maintenance capex = EBITDA - Change in net working capital - Maintenance capital expenditure excluding right-of-use assets.

CEO Joni Lukkaroinen:

”After a very strong first half of the year, our net sales for the third quarter were reduced by the maintenance shutdown which lasted longer than normally. During the shutdown, in addition to normal maintenance tasks, tie-in connections between the current metals production and the new battery chemicals plant were executed. This was an important step in the project and brings us nearer to the commissioning start-up which will be initiated in the near future.

All in all, the battery chemicals plant project is proceeding well and the plant will be commissioned as planned in early 2021. Recruitments have continued and the plant’s workforce is currently almost 130 persons. Including maintenance and quality assurance operations the battery chemicals plant’s total workforce will be approximately 170 when fully operational. We have been delighted to see that the open positions at our battery chemicals plant have received a great deal of interest and we have been able to recruit a very skilled and motivated team to run the plant. Terrafame directly employed a total of 843 people at the end of the review period and an average of 1,160 people (FTE) employed by our partner companies worked at Terrafame’s industrial site over the course of the review period.

The major shutdown decreased our metals prodution tonnes in the third quarter and this was visible in our net sales which came to EUR 234.6 (243.6) million in January-September 2020. The shutdown’s impact was also decreased EBITDA which came to EUR 6.1 (31.3) million for the review period.

The impact of the coronavirus pandemic was reflected in the demand for electric vehicles in early 2020. However, as early as in March, EV sales started to recover first in China and later in Europe and in North America. In June, global BEV & PHEV sales saw an increase of 46 percent m-o-m, supported by a particularly strong month in Europe where sales returned to pre-coronavirus levels. The increase in overall EV sales started to level off in July but the year-to-date sales in August were still 5 pe rcent higher than the previous year.

Concerns about climate change, and especially the high CO₂ emissions generated by transport, are increasing the demand for electric vehicles. The transition to electric vehicles is also being accelerated by various governmental control measures. In September, we released the outcome of the certified life cycle assessment, which showed that the carbon footprint of Terrafame's nickel sulphate is more than 60% lower than that produced by conventional production technologies. Our bioleaching-based production process uses about 90 per cent less electricity and thermal energy in the production of nickel sulphate than the industry average. We have a unique integrated production process from our own mine to battery chemicals which is energy efficient and provides customers with a transparent, traceable and truly European battery chemical production chain. At Terrafame, we are proud to participate in the fight against climate change by enhancing low-carbon mobility with responsibly produced battery chemicals. We are also committed to supporting and applying the ten principles of the UN Global Compact initiative in the fields of human rights, labour, the environment and anti-corruption in our operations and strategies.

At our industrial site, we continue to promote a stronger safety culture both among our own personnel and in our partner companies. We have achieved some improving results but we need to focus targeted safety measures on those areas of production where improvements are most urgently required. During the review period, Terrafame’s employees suffered 8 (6) lost-time injuries. The rolling 12-month lost-time injury frequency rate (LTIFR), or number of accidents resulting in absence per one million person-hours, was 10.4 (6.3). The 12-month LTIFR of partner companies was 11.2 (17.5). The combined 12-month LTIFR of Terrafame and all of its partner companies was 10.9 (12.2).”

Market developments

Electric vehicles and EV battery markets

According to Rho Motion analysts’ estimates, the global EV sales, including BEV and PHEV, were approximately 1,470,000 (1,400,000) units in January–August 2020 which is 5 percent more than during the corresponding period in 2019.

In early 2020, the outbreak of the coronavirus pandemic resulted in a significant reduction in Chinese EV sales. However, they already started to recover in March. The major reduction caused by the actions taken to fight the coronavirus followed China with a delay in European and North American EV sales ocurring in April and outweighing on the global scale the continued recovery in China. In June, global BEV & PHEV sales saw an increase of 46 percent m-o-m supported by a particularly strong month in Europe where sales returned to pre-coronavirus levels. The increase in overall EV sales started to level off in July but the year-to-date sales in August were still 5 percent higher than the previous year.

The sales weighted average battery pack size was 50 kWh in August 2020 compared with 55 kWh in August 2019. However, average pack sizes increased for the first time since April, a product of a strong sales month in China, where BEVs make up a larger share of the market than in Europe. In terms of chemistry development, the share of NCM811 batteries in the market was 9 percent compared with 4 percent in August 2019. The global market share of NCM622 batteries was 37 percent in August 2020 compared with 12 percent in August 2019.

Nickel and zinc

In the third quarter, the market price of nickel was USD 14,213 per tonne in the London Metal Exchange (LME), an increase of 16.1 per cent from the second quarter in 2020 (12,243). However, in July–September 2020, the price of nickel fell by 8.6 per cent year-on-year (15,510). The average price of nickel decreased in January–September by 2.5 per cent year-on-year amounting to approximately USD 13,069 (13,407) per tonne. After the steep decline in the Q1 2020, recovery in Chinese stainless steel demand has driven the nickel price recovery.

In the third quarter, the market price of zinc was USD 2,335 per tonne in the London Metal Exchange (LME) which is 18.9 per cent higher than in the second quarter of 2020 (1,964). The upside in zinc price comes from sharp response to the coronavirus impacts from the supply side and some maintenance-driven smelter downtime in China. In July–September 2020, the price of zinc fell by 0.6 per cent year-on-year (2,350). In January–September, the price of zinc fell 17.5 per cent year-on-year and was an average of USD 2,145 (2,602) per tonne.

The combined nickel stock levels in the London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) amounted to 265,313 tonnes at the end of the review period. The stock levels increased compared with both the situation at the end of the second quarter of 2020 (262,517) and year-on year (174,008). The stock levels equalled just under 6 (4) weeks’ demand. At the end of the review period, the zinc stock levels totalled 260,724 tonnes equalling approximately one week’s (half a week) demand. At the end of the second quarter of 2020, the combined zinc stock levels totalled 220,457 tonnes while at the end of the third quarter of 2019 the zinc stock levels totalled 132,845 tonnes.

Exchange rate

In the third quarter of 2020, the average EUR/USD exchange rate was 1.17 compared to 1.10 in Q2. The average EUR/USD exchange rate was 1.11 and 1.12 in Q3 and Q2 of 2019, respectively.

Metals production

Nickel production decreased by 4.3 per cent in the review period to 20,141 (21,050) tonnes. Zinc production decreased by 5.5 per cent to 40,063 (42,377) tonnes. The decrease in production volumes was caused by the longer than normal maintenance shutdown in Q3 which, in addition to normal maintenance tasks, included tie-in connections between the current metals production and the battery chemicals plant.

In the third quarter, nickel production decreased by 37.3 per cent year-on-year to 4,679 (7,466) tonnes. Zinc production decreased by 33.9 per cent to 10,134 (15,341) tonnes. In the previous year, the scheduled maintenance shutdown was executed in Q2.

Net sales and financial performance

During the review period, net sales decreased by 3.7 per cent and came to EUR 234.6 (243.6) million. Decrease in net sales was mainly due to the decrease in production volumes caused by the longer than normal maintenance shutdown in Q3 which offset the good performance in the earlier part of the year. In addition to normal maintenance tasks, tie-in connections between the current metals production and the battery chemicals plant were executed during the shutdown. Deliveries have not been impacted by the coronavirus pandemic.

Net sales in the third quarter decreased by 39.5 per cent year-on-year and came to EUR 62.0 (102.4) million. The very high net sales in the comparison period were supported by the steep rise in the price of nickel in July-August 2019.

Hedging had a positive impact on the company's net sales during the review period. In the latter part of the year 2019, the strategic level of hedging for nickel deliveries in particular was raised to take advantage of the increased market prices. This had a clear positive impact on net sales for the whole review period although rising market prices diluted the impact during Q3 2020.

EBITDA for the review period came to EUR 6.1 (31.3) million which accounts for 2.6 (12.8) per cent of net sales. EBITDA decreased due to the pro