You have certainly heard about the Terrafame (ex-Talvivaara) mining company, for a number of different reasons, such as an environmental scandal, and more recently a more political scandal when the state became the owner in order to save the company, just before the company signed a juicy contract with a company owned by Prime Minister Sipilä’s children.
Today, the company is again making the headlines with a deal with Trafigura Group, a Switzerland/British/Switzerland operator who announced that its investment arm Galena Asset Management has made a EUR 75 million investment in Terrafame, with 25 millions allowing them to receive a 15.5% equity stake in the mine, and 50 millions as a loan. The Finnish state is holding the rest of the shares. Trafigura has committed to purchase a seven-year mine’s entire nickel production and 80 per cent of zinc production, but the proice conditions are not disclosed. In addition, the Finnish financial company Sampo is providing a loan of EUR 25 million. The specifics of the deal, and in particular the guarantees provided by the Finnish state concerning the 50 millions euros loan from Trafigura are not known. It should also be mentioned that the Finnish Parliament granted Terrafame Group in the autumn EUR 100 million for investments .
When announcing the deal, Minister of Economic Affairs Mika Lintilä (center),also stresses that Terrafame has now all the prerequisites to engage in mining activities succesfully from the environmental and economical perspective. But M. Lintilä’s declaration are quite risky. Certainly, the Trafigura group, is a multinational commodity trading company founded in 1993 that trades in base metals and energy, including oil. It is the world’s second or third largest private oil trader. It looks serious, but it has its dark (and worrying) side.
Trafigura, as Terrafame, has a bad track record in environmental protection
- Trafigura has been responsible for the 2006 Ivory Coast toxic waste dump, which left up to 100,000 people with skin rashes, headaches and respiratory problems. Its CEO has been in jail for 6 months in Côte d’Ivoire
- On 24 May 2007 an explosion occurred in Sløvåg Gulen, Sogn og Fjordane, Norway in a tank owned by Vest Tank, that had severe environmental and health consequences for people living nearby, and the owner of the waste was Trafigura, on whose behalf Vest Tank was working (requests by Norwegian police to interview Trafigura employees were not granted by the company).
- In 2016, the Swiss non-governmental organisation Public Eye published the results of its investigation showing how traders – especially Trafigura – prepare and sell “African quality” toxic fuel to Africa, containing high levels of sulphur that causes particulate matter pollution, damaging people’s health.
That is probably why Trafigura is not afraid about the poor environmental protection record of Terrafame, but it is not encouraging for Kainuu people…
Trafigura is not a successful economic operator, but a shady one
- The company was also involved in the Iraq Oil-for-Food Scandal: Saddam Hussein’s Iraq was under international sanctions in 2001 when Trafigura was involved in the smuggling out of the country of 500,000 barrels of oil, according to the UN Volcker report. Allegedly, a UN inspector was bribed by Iraq to turn a blind eye.
- In 2006, there was another (bribery) scandal: Jamaica had been granted rights to some cheap Nigerian oil, and allowed Trafigura to sell it and keep the profits, paying only a few cents per barrel commission. Scandal erupted when a whistleblower disclosed a secret £220,000 payment to the ruling party. Colin Campbell, general secretary of the People’s National party, in Jamaica, had to resign. Trafigura denied any involvement…
- Trafigura is not a rock-solid group, it has been dealing with financial uncertainty in the last years, and since 2012, Trafigura’s adjusted net debt has more than doubled to $8.8bn from $3.2bn. Because of these financial problems, Trafigura had to close at the end of 2015 its hedge fund Galena Metals Fund, victim of the rout in raw materials markets from oil to copper.
- It was then that its CFO indicated that “the company is still interested in buying assets but would only look to do so with partners who could share the “capital burden””, which one can suppose is the case with Terrafame.
- In the EU, in February 2013, Trafigura Maritime Ventures Limited—the Malta based subsidiary of Trafigura based in Singapore—and the oil trading arm of Total became involved in an oil price fixing controversy that led them to both be barred from the tendering process at the Enemalta oil purchasing board.
Trafigura is more and more involved with Russia’s oligarchy
After its past difficulties, Trafigura has been quite successful since 2015, in particular due to its deals on the oil market. One main reason is that Trafigura benefited from a privileged access to the Russian market, when the U.S. and the European Union slapped sanctions on the Russian oil company Rosneft, an integrated oil company, majority owned by the Government of Russia. Trafigura was quick to lend a helping hand. A series of sanction-compliant short-term prepaid financing deals were struck that provided Trafigura with millions of tons of coveted Russian crude and petroleum products, while giving Rosneft and its CEO, Sechin, a personal confident of President Putin, desperately needed cash.
This collaboration with Rosneft is now becoming tighter : according to Bloomberg, in October 2016 Trafigura Group has purchased 24 percent of the Indian company Essar Oil, in a historical deal which ” marks a strategic shift as the trading house builds its position in the fast-growing Indian market and deepens ties with Russia’s Rosneft PJSC. Part of a $13 billion deal spearheaded by Russia’s state-controlled petroleum giant Rosneft, it’s the largest oil acquisition in the 23-year-old commodity trader’s history“.
Considering Finland’s geostrategic situation, the Terrafame deal could have been discussed more openly, but the government has been in the last year quite desperate to find an investor, at least for political reasons… But the deal seems quite political also, and the details would be interesting to know, including the Finnish state’s guarantees for Trafigura.