Finnish firm Talvivaara Mining Company has secured a nine-year $320 million project financing for its Talvivaara sulphide nickel mine in Finland. The original mandated lead arrangers SG and Standard Bank have brought aboard regional bank Nordea and HVB as fellow mandated lead arrangers in the deal.

Aside from the rarity of a project financing of a mine in the EU, the deal is notable for opening up the predominantly state-owned Scandinavian mining sector to private investment, the use of mining technology with a short track record for extracting nickel, the speed at which the financing was put together and the lack of a sole or overarching EPC contractor.

Talvivaara's principal concern was to keep to a strict timetable to allow for a main listing on the London Stock Exchange and time was also of the essence with regard to long-lead time capex items as work on the mine is weather constrained.

One of the requirements of listing on the main board is that the prospective company lists with "current accounts". Accounts are defined as current if they are within six months of the date of reporting, so having posted its results on 31 December 2006, Talvivaara's window of entry runs to 30 June 2007.

Talvivaara mandated JP Morgan to help navigate its way to the LSE and make the project a reality, and although the company was in talks with banks at the back end of 2006, it was not until 2007 that SG and Standard Bank were mandated. From almost a standing start financial documentation was drawn up and signed within six weeks.

Saila Miettinen-Lähde, CFO says: "From the outset we aimed for a fast and efficient process to develop through to financial close, and with the banks officially mandated in early 2007, we have accomplished what we set out to do." Participants cited that the speedy path to close was achieved because all parties around the table from the lenders' mining teams, legal advisers Norton Rose and Mayer Brown, through to the management of Talvivaara, were seasoned mining experts.

Most of the early negotiations centred on overcoming the cultural differences with the Talvivaara management who were unused to the transparency and contractual rigour of a project financing. The Nordic mining sector, which loosely comprises just Finland and Sweden, is very prospective and almost all the projects are undertaken by state or former state-owned companies. These projects are funded and constructed internally, so are unused to the scrutiny of project finance banks or shareholders.

Most of Talvivaara's management team were former employees of state incumbent Outokumpu. Indeed, Talvivaara acquired the interest in the two polymetallic deposits, Kuusilampi and Kolmisoppi, in Sotkamo, in 2004 from Outokumpu for one euro. In return Outokumpu received an option to acquire 20% of the company for one euro which it has exercised. Outokumpu also has the option to purchase 5% of the Talivaara's post-listing stock at a 20% discount to the offering price.

Given the experience of Talvivaara's management team, the lenders were able to take a benign view of the absence of a single EPC contractor. Instead, management will take a hands-on role organising and letting a series of contracts predominantly with Finnish construction firms.

Talvivaara is using a fairly unconventional approach to Nickel extraction – bioheapleaching. The process harnesses locally occurring live bacteria for the extraction of metals from ore. Although widely used for other metals, notably copper and gold, the technology does not have a long track record with nickel. Consequently, during the last two years, to demonstrate the viability of using the bioheapleaching for nickel, Talvivaara has conducted several large on-site pilot trials.

With total project costs at about $500 million, the company plans to raise a further $250 million through its listing. Talvivaara chose to raise dollar-denominated debt over Euros to avoid the currency risk of different denominations of debt and metal prices.

A successful listing, which is expected at the beginning of June, is a condition precedent on drawdown of the project financing. Miettinen-Lähde says: "We are now going to the market with a fully-funded project, and the equity raising with the debt should comfortably cover the cost of the project through to production."

The Talvivaara deposits comprise one of the largest sulphide nickel resources in Europe with 266 million tonnes of ore, enough to support production for 24 years, starting in late 2008, with an annual nickel output of around 33,000 tonnes. In addition, the mine is also expected to produce zinc 60,000 tonnes per year, copper around 10,000 tonnes per year and cobalt 1,200 tonnes per year as by-products of the process.

With nickel prices close to all time highs Talvivaara seems to be benefiting from exceptional timing. Miettinen-Lähde would not be drawn on the amount of upside they may be giving away through hedging, nevertheless a significant risk mitigant for lenders is the 10-year offtake deal with Norilsk Nickel for all the mine's nickel and cobalt output.

European nickel mines are currently like buses: you wait for ages for one to turn up then, suddenly, two turn up at once. The Caldag mine in Turkey is likely to be the next European nickel mine to reach financial close, however unlike Talvivaara it has had a much more protracted path to financial close. (For more details search 'Caldag').

Talvivaara Nickel Mine
Status: Financial close 7 May 2007
Description: $320 million project financing of a sulphide nickel mine in Finland
Sponsor: Talvivaara
Lead arrangers: SG, Standard Bank, Nordea, HVB
Lender legal counsel: Mayer Brown
Borrower legal counsel: Norton Rose
Equity adviser: JP Morgan