Nyrstar Drops Most on Record Amid Potential Equity Issueby and
Shares slump as much as 34% to lowest level in six years
CEO says additional suspensions may mean extra impairments
Nyrstar NV, Europe’s largest refined-zinc producer, plunged the most since its shares began trading eight years ago after it said the mining business is being challenged by the rout in metals, raising the prospect of another share sale.
The stock slumped 27 percent, the most since listing in October 2007, to the lowest in six years. The company is evaluating debt and equity-market alternatives to address a 415 million-euro ($463 million) bond maturity in May 2016, while ruling out restructuring of the debt due next year, it said Thursday. The producer’s investment in smelting operations in Australia will cost more than previously forecast, it also said.
Nyrstar is among producers battling lower commodity prices with zinc down 20 percent this year on weakening demand from top consumer China. It plans to cut costs and capital spending in its mining business by 40 million euros a year and said it doesn’t rule out more suspensions beyond its Campo Morado and Myra Falls operations, according to a statement Thursday. Suspending additional mines may result in extra impairments by the end of the year, Chief Executive Officer Bill Scotting said on a conference call.
"Clearly, the business has underperformed for some time," Scotting said, referring to mining. "At these zinc prices we are not cash generating so we have to look at that portfolio. If zinc prices don’t recover we will potentially have to idle more mines."
The stock slumped to 1.532 euros in Brussels trading, valuing the company at $581 million. The shares have been hit by disappointing earnings, cost overruns at Port Pirie in Australia, as well as the speculation about raising equity spurred by the potential mining impairments, according to ABN Amro Bank NV.
An equity raise “is definitely one thing that will come through," Philip Ngotho, an analyst at ABN Amro in Amsterdam, said by phone. The rights offering, expected to amount to at least 250 million euros, will help reduce the risk of a covenant breach, the bank said in a report Oct. 20.
The investment in the company’s Port Pirie smelting operations will cost A$563 million ($407 million), about 10 percent more than previously forecast, Nyrstar said. The redevelopment is still on schedule for ramp-up in the second half of next year.
Nyrstar’s 350 million euros of bonds due September 2019 erased gains made in October and dropped as much as 19 cents on the euro to 71.6 cents. The bonds were quoted at 80.5 cents at 5:00 p.m. in London, the lowest close on record, yielding 15.3 percent, according to data compiled by Bloomberg.
The company has no plans for debt restructuring of its May bond, spokesman Greg Morsbach said.
Should Nyrstar announce a rights offering in coming weeks, it would be the second one in less than 14 months.
Nyrstar wrote down about 40 percent of the acquisition cost in the first half, leaving its cash consuming mining assets valued at 624 million euros after output and profitability projections weren’t met. The company, the world’s largest refined zinc producer by capacity, spent more than 1 billion euros from 2009 through 2011 buying mines and stakes in the industry from Greenland to the U.S. and Chile to safeguard raw material feeds for its smelters.
Earnings before interest, taxes, depreciation and amortization totaled 215 million euros in the nine months through September, up 38 percent from a year earlier, it said.