HELSINKI, Nov 7 (Reuters) - Finland's biggest nickel mine, which was bailed out by the government last year, could secure new investors by the end of December to avoid being closed down and is on track to become profitable by 2018, its state owner said.
The government took over the mine last year following production problems, environmental damage and a drop in nickel prices, which had pushed former owner Talvivaara Mining Company into debt restructuring.
In May this year, the government said it would start preparations for closing the loss-making mine if no private investor was found by the end of the year.
Lauri Ratia, the chairman of Terrafame Mining Company, the state vehicle set up to run the mine, presented improved production volumes for the third quarter on Monday and said he was hopeful a deal can be reached.
"There is clear interest for the operation and we are having discussions with several parties, including mining and metal companies, investors in the sector as well as trading houses," he told a news conference.
"This is a demanding process but we have good conditions to reach a solution by the end of the year."
The government has so far bailed out the mine because it seeks to protect the environment and jobs in the rural Kainuu region. About 990 people, including contractors, worked at the site as of the end of September.
Terrafame said it was proceeding well in ramping up the site, with nickel production rising 35 percent in the third quarter from the previous quarter to 2,370 tonnes.
The mine's operating loss narrowed slightly to 42.5 million euros ($47 million), but Terrafame said a new production line would soon boost sales and enable positive cash flow by 2018.
The site, then owned by Talvivaara, aimed to become Europe's biggest nickel mine by pioneering an extraction process called bioheap leaching, or using bacteria to extract nickel.
But production problems were compounded when the mine leaked waste water in 2012, raising the level of uranium and other metals in nearby lakes and rivers.
The government has so far injected around 500 million euros into the site, and it has estimated that the cost of a closure would be about 300 million euros. ($1 = 0.9042 euros) (Reporting by Jussi Rosendahl; Editing by Susan Fenton)