New private financing for Terrafame to support future investments

Terrafame Group Ltd. (“Terrafame Group”) and Terrafame Ltd. (“Terrafame”) have on November 9, 2017 agreed with Galena Asset Management (“Galena”), Trafigura Group (“Trafigura”) and Sampo plc (“Sampo”) on a funding package to support Terrafame’s future investments and business initiatives.

The parties have previously agreed on a EUR 250 million funding package to finalize the ramp-up of Terrafame. The new funding package now agreed on is a significant factor enabling Terrafame to move from established industrial operations to investing in new business opportunities associated with the electric vehicle battery segment.

Key elements of the funding package are:

• The funding arrangement totals USD 200 million (approx. EUR 175 million).
• As a first step, Galena makes a USD 50 million equity investment in Terrafame in order to provide funding certainty for the final stages of the ramp-up and also to cover the cost of feasibility studies, engineering and early capital works associated the development of a nickel and cobalt sulphate project.
• In addition, Galena has agreed to make a further USD 50 million equity investment to be drawn down as required to fund continued capital investment.
• Further, Trafigura has agreed to provide a USD 75 million and Sampo a USD 25 million loan facility to Terrafame. These loan facilities will be used alongside the equity investments to ensure that the sulphate project is fully funded. Galena will provide the funding for Trafigura’s loan.

The new financing enables Terrafame’s future growth investments

“After a successful ramp-up of Terrafame’s operations, the company is strongly moving ahead to a phase of established industrial operations. Part of this is exploring new investment opportunities such as upgrading of the mixed nickel-cobalt sulphide product to two separate nickel and cobalt sulphate products. After a EUR 250 million funding package by Trafigura, Galena and Sampo in February 2017 we are delighted to see our co-owners’ continuing commitment in the form of a new USD 200 million funding package that will support Terrafame’s future growth investments,” says Janne Känkänen, Chairman of the Board of Terrafame Group Ltd.

“The ramp-up of Terrafame’s mine has reached the objectives set when the operations started in August 2015. The company has met its key production targets, and costs have stayed within budgets. The environmental situation at the mine is stable. Bioheapleaching is working according to expectations and Terrafame is ready for new opportunities,” Känkänen continues.

“Terrafame’s continued strong performance is the result of the intense ramp-up work by the company’s management and employees during the last two years. During the ramp-up, we have also explored new opportunities to widen Terrafame’s product portfolio and upgrade our nickel product. Nickel upgrade options have included the production of NiFe alloys for stainless steel production and nickel and cobalt sulphates for electric vehicle battery applications. Both projects are being advanced to feasibility study stage. Based on our preliminary conclusions, the nickel and cobalt sulphates project seems to be the most promising of these options. We will make a formal investment decision related to upgrading nickel product by next spring,” says Lauri Ratia, Terrafame’s Chairman of the Board.

“We’ve been very impressed by both the quality of the Terrafame management team and how the mine is performing,” says Maximilian Tomei, CEO of Galena Asset Management. “Terrafame is now ready for a second investment phase which will benefit from the rapid development of the electric vehicle industry. We can anticipate significant growth in future demand for nickel and cobalt sulphates used in battery production for electric vehicles and can capitalize on this demand by further enhancing Terrafame’s expertise and production capabilities. This will position the company as an essential north European provider of feed to the battery industry,” Tomei concludes.

Additional information on the key elements of the arrangement

The equity investments are made on the same share price as in the financial transaction closed in February 2017. Hence, the pre-transaction valuation of Terrafame is EUR 481.8 million.

The equity investment gives Galena option rights to subscribe to Terrafame’s shares with USD 100 million. The subscription price carries a premium of 10% above the subscription price at signing.

The maturity of the loan facilities is 5.5 years. The loans have a 1.5% drawdown fee payable in shares of Terrafame.

Loan facilities give Galena and Sampo option rights to subscribe Terrafame’s shares with USD 75 million and USD 25 million respectively, and with the sum of accrued interests. The agreed subscription price carries a premium of 15% above the subscription price at signing.

Trafigura and Terrafame have extended the current offtake agreement concerning the zinc sulphide precipitates and have negotiated new commercial arrangements for future nickel and cobalt sulphate products. In accordance with the extended offtake agreement, Trafigura will buy 80% of the zinc sulphide precipitates produced by Terrafame until the end of 2027. In the commercial arrangement for new nickel and cobalt products, Trafigura will market 100% of these products until the end of 2027. The commercial conditions of the arrangement follow the market practices generally applied in the markets. The offtake agreement for 100% of nickel and cobalt sulphides continues in force.

The validity period of the EUR 50 million stand-by facility committed by Terrafame Group as a part of the previous funding package in February 2017 has been extended until the end of year 2021.

The transactions announced with this press release have been executed before the announcement.

Terrafame’s shareholder base

Prior to the new arrangement, Terrafame’s shareholder base consisted of Terrafame Group with a shareholding of 84.0%, Galena with a 15.9% share and Sampo with a 0.1% share. Since the funding arrangement agreed on in February 2017, Galena and Sampo have chosen to receive interest payments on the loan facility in Terrafame’s shares.

After the new arrangement i.e. USD 100 million equity investment and payment of drawdown fees of the loan facilities, Terrafame Group’s shareholding in Terrafame will be 71.2%, Galena’s 28.7% and Sampo’s 0.1%. As a consequence of the arrangement signed and executed today, Terrafame Group’s shareholding in Terrafame can decrease to a minimum threshold of 50.1% in the future, if option rights are used and accrued interests are paid in shares.

Further information:

Terrafame Group Ltd., Matti Hietanen, CEO, tel. +358 40 823 8806

Terrafame Group Ltd., Janne Känkänen, Chairman of the Board, tel. +358 50 3964 990

Terrafame Ltd., Lauri Ratia, Chairman of the Board, tel. +358 50 2922

Terrafame Ltd., Joni Lukkaroinen, CEO, tel. +358 50 590 0720

Trafigura’s Global Press Office: +41 (0) 22 592 4528 or media@trafigura.com

About Terrafame:
Terrafame Ltd. is a Finnish multi-metal company producing nickel, zinc and cobalt at its mine and metals production plant located in Sotkamo. Our aim is to conduct environmentally sustainable, safe and profitable operations.

About Terrafame Group:
Terrafame Group Ltd. is a special-purpose company wholly owned by the State of Finland. It is responsible for managing the state ownership and exercising the owner's power at Terrafame Ltd. Terrafame Group's role is to secure private supplementary financing and support the stabilisation and development of the mining company's operations. Terrafame Group is also responsible for helping the development of new technological solutions related to mine water purification.

About Trafigura:
Founded in 1993, Trafigura is one of the largest physical commodities trading groups in the world. Trafigura sources, stores, transports and delivers a range of raw materials (including oil and refined products and metals and minerals) to clients around the world. The trading business is supported by industrial and financial assets, including 49.6 percent owned global oil products storage and distribution company Puma Energy; global terminals, warehousing and logistics operator Impala Terminals; Trafigura's Mining Group; 50 percent owned DT Group which specialises in logistics and trading; and Galena Asset Management. The Company is owned by around 600 of its 4,100 employees who work in 61 offices in 36 countries around the world. Trafigura has achieved substantial growth over recent years, growing revenue from USD12 billion in 2003 to USD98.1 billion in 2016. The Group has been connecting its customers to the global economy for more than two decades, growing prosperity by advancing trade. Visit: www.trafigura.com  

About Galena:
Galena Asset Management S.A. is the wholly-owned investment arm of the Trafigura Group, a world leading commodity trading firm, and is authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). For more than a decade Galena has operated at the intersection of financial and physical commodity markets, enabling leading institutional investors to access investment opportunities alongside the Trafigura group through funds or managed accounts. Galena’s portfolio management specialists have built considerable experience in metals, minerals, oil, shipping and infrastructure. Galena acts independently, but derives significant benefits from its relationship with Trafigura, its principal anchor investor.

The Galena Private Equity Resources Fund LP is a US$400 million closed end Cayman Islands limited partnership designed to invest in the junior mining sector. The investors are leading global institutional investors, including a US university endowment and one of the biggest European insurance companies and a number of family offices. Trafigura is also a limited partner in the fund. As of December 2016 the fund had two investments in its portfolio. It is a majority owner of Bowie Resource Partners LLC that operates four thermal coal mining operations in Utah and Colorado in the United States. The company has one of the most productive and longest continuously operating mines in the United States and has an exceptional safety and environmental track record. The fund is also a majority investor in Mawson West, a copper and silver-focused resource company operating in the Katanga Basin in the Democratic Republic of Congo (DRC). The Galena Private Equity Resources Fund has invested in Bowie since August 2013 and in Mawson West since December 2014.

Galena has unparalleled access to the commercial and technical expertise of the Trafigura Group in the non-ferrous and ferrous space. The investment professionals have the ability to leverage Trafigura’s global presence with 61 offices in 36 countries and rely on the Group’s solid reputation. The fund invests globally and usually intervenes actively in the strategic direction of companies invested in. Trafigura is a limited partner in the fund. Visit: www.galena-invest.com