Terrafame, Trafigura, Galena signs funding package

Terrafame

Terrafame Group Ltd. Terrafame Ltd., Trafigura Group and Galena Private Equity Resources Fund have announced a special 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.

“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 allocation in December 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.

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.