Terrafame secured private financing

Terrafame Group Ltd., Terrafame Ltd., Trafigura Group and its investment arm Galena Asset Management have today on February 10, 2017, agreed on a funding arrangement and long term commercial collaboration. Terrafame Group and Sampo plc act as co-investors in the transaction. The private funding arrangement secures the completion of Terrafame’s ramp-up as planned.

Terrafame Group Ltd. (“Terrafame Group”), Terrafame Ltd. (“Terrafame”), Trafigura Group (“Trafigura”) and Galena Private Equity Resources Fund (“Galena”) have today on February 10, 2017 agreed on a funding package and long term commercial collaboration. Trafigura is a market leader in the global commodities industry, and Galena is the private investment arm of Trafigura Group concentrating on private equity-type investments in promising mining assets.

 

Key elements of the arrangement closed today are:

• The funding arrangement totals EUR 250 million, while the financing need to complete the ramp-up of Terrafame’s operations is estimated as EUR 150−200 million.
• The pre-transaction valuation of Terrafame has been agreed at EUR 381.8 million, which is equal to the total equity invested in Terrafame to date by Terrafame Group.
• Galena has made a EUR 75 million equity investment in Terrafame. With this equity investment Galena has received a 15.5% equity stake in Terrafame.
• In addition, Terrafame Group has made a further EUR 25 million equity investment in Terrafame on the same terms as Galena. Terrafame Group’s equity stake in Terrafame is 84.2% at closing. Terrafame Group has also committed a EUR 50 million stand-by facility which can be drawn as equity if required.
• Trafigura has in addition agreed to extend a EUR 75 million loan facility to Terrafame. Galena will provide the funding for this loan.
• Sampo plc has agreed to provide a EUR 25 million loan facility to Terrafame on pari passu terms with Trafigura´s loan facility.
• Trafigura will buy 100% of the nickel-cobalt sulphide precipitates and 80% of the zinc sulphide precipitates produced by Terrafame during the next seven years.
• Terrafame continues to execute the ramp-up of its operations according to the current business plan and under the present management. The transaction does not have any effect on Terrafame’s personnel.

 

The private financing secures finalizing the ramp-up of Terrafame

“We are most delighted with the arrangement made with Trafigura, Galena and Sampo that will secure the completion of the ramp-up of Terrafame. The successful financing package proves that Terrafame has all the necessary prerequisites for financially sound and environmentally sustainable business,” says Matti Hietanen, CEO of Terrafame Group Ltd.

“The process to secure private financing for Terrafame started in autumn 2016. After a thorough global financing round we have now reached an arrangement with Trafigura and Galena, who will bring additional industry-related commercial and technical expertise to Terrafame. From both Terrafame Group’s and the state-owner’s perspective, it is important that the pre-money valuation of Terrafame equals the funds invested in Terrafame,” Hietanen continues.

“Terrafame’s management and employees have intensively continued the ramp-up since August 2015, when Terrafame’s operations started. The strong performance and de-risking of the operations have been key prerequisites in reaching the current funding arrangement. Throughout the past 18 months, Terrafame’s operations have developed according to plan and under budgeted costs. The bioheapleaching process has performed better than expected, and Terrafame has been able to decrease materially the amount of water stored at the mining site and to improve occupational safety,” says Lauri Ratia, Terrafame’s Chairman of the Board.

“Terrafame’s key strategic objectives are to run the company in an environmentally sustainable, safe and economically effective way. All the parties in this transaction recognize the importance of sustainability and have agreed that Terrafame will continue its systematic work in all areas of sustainability and social responsibility. Terrafame has already reached significant improvements both in water management as well as in occupational safety – this is the road we will continue,” Ratia concludes.

“The Trafigura Group’s investment through Galena will provide the working capital needed to enable the Terrafame mine to reach its potential to become a world-class mine. Trafigura is a company with physical trading and logistics at its core and with assets and investments that complement and enhance this activity. Terrafame should benefit from the financial strength, extensive market knowledge and global presence that the group brings,” says Jeremy Weir, CEO of Trafigura.

“Looking forward the demand side for nickel looks robust, with industrial activity indicators in developed economies looking very strong and demand in emerging markets continuing to benefit as rising wealth leads to more discerning consumers that prefer stainless steel products over cheaper alternatives. For zinc, tightness in mine supply that developed over 2016 is resulting in a tightening refined metal market with metal stocks starting to draw, which should support prices this year. Demand continues to be supported by strength in global auto sales and infrastructure investment in China,” Weir concludes.

“Terrafame is a good fit with the Galena Private Equity Resources Fund’s existing investments and diversifies our current portfolio both in terms of geography and commodity. We are impressed by the company’s strong management team and the mine’s high quality resources. Since Terrafame’s inception, the company has been debt free and once ramped up will produce at low cash costs. The ability for Galena to participate alongside the Finnish government reinforces our conviction of the company’s ability to successfully meet its objectives,” says Maximilian Tomei, CEO of Galena Asset Management.

 

Additional information on the key elements of the arrangement

The maturity of the loan provided by Trafigura is 5 years. The loan has a 1.5% drawdown fee payable in shares of Terrafame, which corresponds to an additional 0.2% equity stake in Terrafame.

The loan facility gives Galena an option right to subscribe to Terrafame’s shares with EUR 75 million including accrued interests. The option rights agreement is valid for a period of 5 years. The agreed subscription price carries a premium of 10% above the subscription price at closing.

Terrafame Group provides a EUR 50 million stand-by facility to Terrafame which can be drawn as equity if required until the end of 2018. The facility may be drawn in the event that Terrafame requires additional funding.

The EUR 25 million equity investment and the stand-by facility are drawn from the Government’s budget proposal in November 2016 to grant a EUR 100 million capitalization to Terrafame Group to finance the future operations of Terrafame.

Trafigura will buy 100% of the nickel-cobalt sulphide precipitates and 80% of the zinc sulphide precipitates produced by Terrafame during the next seven years. The pricing and other commercial conditions of the offtake agreement follow normal market practices applied in the global metals markets.

The parties have agreed on a three-year lock-up period during which neither party can sell their shares in Terrafame with the exception of the EUR 25 million subscribed by Terrafame Group, which may be sold within a period of six months from closing.

The transactions announced with this press release have been closed today.

 

Governance

Shareholders’ Agreement between the parties includes normal minority shareholder protection for Trafigura/Galena.

Terrafame’s Board of Directors will comprise of six members. Trafigura/Galena has the right to appoint two Board members. As of today, Terrafame’s Board consists of Lauri Ratia (Chairman), Esa Lager and Tuomo Mäkelä, as well as Jesus Fernandez (Head of M&A at Trafigura), Emmanuel Henry (Co-Head of Mining Division of Trafigura), and Matti Hietanen (CEO of Terrafame Group Ltd.) who have been appointed as new members.

An Advisory Technical Committee and an Advisory Commercial Committee will be established at Terrafame. The committees are subordinated to Terrafame’s Board of Directors.

The transaction does not have any effect on Terrafame’s personnel, and the present management team of Terrafame will also continue as it is.

 

Press conference and webcast on Friday 10 February 2017

A press conference will be held in Helsinki on Friday, 10 February 2017 at 13:30 (EET). The conference will take place at the event centre Bank, Unioninkatu 20, Helsinki, Finland. The presentation material will be available after the conference at www.terrafame.fi.

The press conference can also be followed through a live webcast at www.terrafame.fi/webcast. The live webcast starts at 13:30 (EET). A recording of the webcast will be available shortly after the event at the same address.

 

Press conference presentation here.

 

Further information:

Terrafame Group Ltd., Janne Känkänen, Chairman of the Board, tel. +358 50 3964 990
Terrafame Group Ltd., Matti Hietanen, CEO, tel. +358 40 823 8806
Terrafame Ltd., Lauri Ratia, Chairman of the Board, tel. +358 50 2922
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. Terrafame is owned by Terrafame Group Ltd., which is wholly owned by the State of Finland.

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