Trafigura Tightens Grip on Zinc Refiner Through Rights Offer

  • Trader to buy up to 50% of shares in first-quarter offer
  • Companies enter into zinc supply and offtake deals in 2016

Trafigura Pte Ltd. agreed to purchase as much as half of the shares being sold in a rights offer by Nyrstar NV as the commodities trader tightens its grip on Europe’s biggest producer of refined zinc.

Trafigura will buy as much as 125 million euros ($135 million) of shares in a first-quarter rights offer totaling 250 million to 275 million euros, Nyrstar said in a statement on Monday. Nyrstar rose as much as 9.4 percent in Brussels.

The share sale may boost Trafigura’s stake in Nyrstar to more than 30 percent, but because that increase comes under a rights offer the trading house won’t have to make an offer to minorities as is usual under Belgian law. At the same time, Trafigura, the world’s second-biggest metals trader, has signed a deal to supply Nyrstar with zinc concentrates from January while purchasing refined zinc and lead.

“They are not taking over the company by stealth,” Chief Executive Officer Bill Scotting said on a conference call, referring to the probable increase in Trafigura’s holding in Nyrstar from about 20 percent. “They’re supporting our strategy.”

Reviewing Stake

Trafigura CEO Jeremy Weir said in a separate statement that the commodity trader supports Nyrstar’s plans and its participation in the rights offering was a “sign of confidence” in the zinc refiner’s management.

Trafigura said on Oct. 27 that the European Commission was reviewing whether its stake in Nyrstar gave it “de facto” control of one of the biggest suppliers to the zinc market. Trafigura, which already has two of its nominees on the company’s board, won’t have the right to appoint a majority of directors after the rights offer, Nyrstar said, adding that the commodity trader has agreed not to increase its stake to more than 49.9 percent.

“We are confident that there is no market concentration issue at stake here,” Scotting said on Monday.

Nyrstar climbed 5.9 percent to 1.63 euros as of 2:47 p.m. in Brussels trading. The rights offer, underwritten by Deutsche Bank AG and KBC Securities NV, has alleviated investor concerns in the short term, Goldman Sachs Group Inc. wrote in a note. Nyrstar stock slumped 27 percent on Oct. 22 when Scotting said the company was considering selling stock to meet its debt obligations.

Offtake Deal

Nyrstar is also planning a 150 million to 200 million euro prepay offtake deal for metal with a commodity trader, which “could be Trafigura,” or another trading house, the CEO said. A zinc offtake agreement with Noble Group won’t be affected by the new agreements with Trafigura, he said.

Nyrstar is among producers battling lower commodity prices and incoming debt maturity, with zinc down 24 percent this year on weakening demand from top consumer China. The company said it’s considering cutting zinc output from its mines by as much as 400,000 metric tons if prices stay depressed. The company has already suspended operations at its Campo Morado and Myra Falls mines.

“The market backdrop has been extraordinarily difficult and that requires some difficult decisions,” said Scotting. “We believe that this package of measures will best address any potential financing needs that are necessary to provide increased financial flexibility required in the current commodity price environment.”

Nyrstar said it was considering strategic options for its mining operations, including asset sales. The company also said it remains ready to issue 200 million to 250 million euros of high-yield bonds if necessary. 

Nyrstar is under pressure as it seeks to refinance 415 million euros of bonds due in May 2016.

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