One of Australia’s biggest minerals processors is facing tough times and a profit warning late last week last saw the price of the Belgium-based Nyrstar plunge 36% to record lows.
That left the shares of one of Australia’s major silver, lead and zinc miners and processors down 36% for the week and more than 55% for the year to date. The shares ended at a record low of 2.90 euros on Friday night in Belgium.
Nyrstar processes silver, led, zinc and gold ores at Port Pirie in South Australia and in Hobart. It has spent over $600 million upgrading the Port Pirie operations in the past few years. The new plant came online this year.
The group said third-quarter profits had been negatively impacted by weak zinc prices and “historically” low processing charges.
Zinc prices have dropped 23% to below $US2,500 a tonne since June, hit hard by the US-China trade spat and concerns about slowing global growth.
The LME three month zinc price edged up 1.5% on Friday to end at $US2,498 a tonne (after a 1.2% rise on Thursday). Zinc was not boosted by the surge in copper prices that saw a 4% jump on the day and nearly 9% for the week.
Nyrstar, which operates zinc smelters and mines in Europe, Australian and the US, said in its warning that it still expects to generate cash this year.
“Full year 2018 guidance for production and CapEx remains unchanged and, on the basis of current market conditions, the Company reiterates its guidance for the positive full year 2018 Free Cash Flow. The Company’s main working capital facilities are committed and support a strong liquidity pool which is expected to be in the range of EUR 620 to 650 million at the end of this month,” the company said in the update.
Nyrstar said: “The outlook for the Company in 2019 will benefit from the ongoing ramp-up of the Port Pirie [smelter] Redevelopment, the ramp-up of the Myra Falls mine, which achieved first concentrate production this quarter and is expected to make its first concentrate shipment in the fourth quarter of 2018, and the hedge of 166,000 tonnes of zinc for Nyrstar’s mining operations that has been put in place at a price of approximately $3,000 per tonne.
“Spot zinc treatment charges, driven by the zinc concentrate market becoming better supplied, have increased notably in China over the past two quarters. This is expected to result in higher realised treatment charges for the Company in 2019 compared to 2018.”
The warning came after the company reported a modest rise in earnings for the six months to June. Directors said group underlying earnings before interest tax depreciation and amortisation rose 8% to 120 million euros (a rise of 9 million euros).
Driving that was a 21% increase in the average zinc price ($US 2,690 a tonne to $US 3,268 tonne), and a 30% production increase in output, partially offset by lower treatment charges.
So the slide in the price since June has taken a rather dramatic toll on the company’s profits which look to have been wiped out.
Now European analysts said the profit warning will add to fears about over company’s balance sheet and how it will refinance a 350 million euro bond next year.
The Financial Times reported “Debt remains a key issue for the Nyrstar . . . although management has so far not mentioned raising equity, we see it as a possibility to materially reduce the burden of their debt,” said analysts at Berenberg.
Nyrstar’s biggest shareholder is Trafigura, the world’s biggest private metals trader and second-biggest oil trader. it has a 21% stake in Nyrstar. Trafigura is also a big investor in Australian oil importing, distribution and marketing through its Puma Energy arm.
