Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate (43 lettori)

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Nyrstar’s Equity Increase, Mining Division Sale and Pact with Trafigura Are
Credit Positive
Last Monday, integrated mining and smelting company Nyrstar NV ((P)B3 negative) announced a fully
underwritten €250-€275 million capital increase, receipt of an upfront cash payment of €150-€275 million
associated with a new zinc metal off-take agreement, and new commercial agreements with its main
shareholder, Trafigura (unrated). The company also announced that it had put its mining division up for sale,
and that it had identified additional cost-saving initiatives aimed at counterbalancing the underperformance
of the mining division amid currently low zinc prices.
These initiatives are credit positive for Nyrstar, because once implemented they will support its financial and
liquidity profile, which we consider weak. In particular, the equity increase and zinc prepay financing, which
Nyrstar expects to complete by first-quarter 2016, will help fund the company’s scheduled debt payments,
principally consisting of €415 million worth of retail bonds due in May 2016.
Furthermore, a sale of Nyrstar’s mining portfolio has the potential to raise sizable cash proceeds, given that
the mining assets’ book value as of June 2015 was approximately €623 million. A sale would allow the
company to reallocate its constrained liquidity to its more profitable metal-processing activities and speed
up progress on a large multi-year investment programme to upgrade several smelters and improve their
productivity and profitability. A sale also would remove a capital intensive, cash-burning business given
currently low zinc prices. The mining division reported negative EBITDA of €17 million and burned through
approximately €90 million of cash during the first nine months of 2015 because of weak zinc prices, lower
productivity and high capital requirements. Under our lower zinc price assumptions for 2016 compared with
2015, the division will remain loss-making and continue to burn cash, albeit at a slower pace than this year,
mainly because of the implementation of a range of cost-saving measures that should reduce the projected
cash burn by €60 million on an annualised basis.
The benefits associated with the disposal plan will outweigh the risks associated with no longer being a
vertically integrated mining and metal processing company. We believe that the new offtake agreements
will mitigate the risk associated with eliminating Nyrstar’s captive sourcing of zinc concentrates, which so
far this year has accounted for approximately 35% of its total annual internal zinc concentrates
requirements to feed its smelters.
Also offsetting the risk is that Nyrstar has ongoing supplies of concentrates from existing long-term mining
and trading partners such as Glencore International AG (Baa2 negative), BHP Billion Limited (A1 stable) and,
starting in 2016, Trafigura, a major trading house with an established market position in trading zinc and
other metals. Of particular importance is Nyrstar’s new commercial agreement with Trafigura, whereby
Trafigura starting next year will supply Nyrstar with zinc and lead concentrates. Doing so will support
Nyrstar’s metal processing core business’ feed book requirements, which we expect will increase starting in
mid-2016 as its redeveloped Port Pirie smelter ramps up to full capacity.
Although the announced measures are credit positive for Nyrstar, execution risk remains material. In
particular, although the equity increase is fully underwritten by Trafigura and two banks, it remains subject
to a number of conditions, including majority approval by Nyrstar’s shareholders, due diligence and
regulatory approval.
 

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