Trafigura to take over metals producer Nyrstar

Swiss trading firm Trafigura plans to take over Belgium-based zinc and lead producer Nyrstar as part of a complex debt restructuring deal to resolve Nyrstar's recent financial difficulties.

Nyrstar, the world's second-largest zinc producer, has entered a lock-up agreement with Trafigura, which has issued a proposal to Nyrstar's creditors to exchange debt for perpetual securities and other capital from Trafigura. Trafigura already owns 24.42pc of Nyrstar.

The agreement has been signed by creditors representing 44.8pc of Nyrstar's debt in aggregate. The company requires the consent of 75pc of its creditors to proceed with the recapitalisation.

Nyrstar's bank lenders have indicated backing for the deal but have not yet provided formal support.

Trafigura will become the owner of 98pc of Nyrstar's shares under the terms of the agreement. It will provide $250mn in credit to Nyrstar during the interim period to ensure that operations continue.

The latest capital injection follows a $650mn loan in November 2018. Nyrstar encountered persistent cash-flow problems last year. Zinc market participants became concerned about accepting metal from the company by December because of doubts over its viability. Many buyers reduced their exposure to Nyrstar by cutting special high-grade zinc volumes booked in long-term contracts, and some sought to restrict business with the company to spot purchases.

Nyrstar and Trafigura were heard to have offered annual zinc premiums $10-20/t lower than their competitors for 2019, as they sought to secure business to alleviate poor cash flows.

The Trafigura takeover may provide some immediate security by staving off potential Nyrstar bankruptcy, but the outlook for the producer's output remains unclear. "It's too early to say what Trafigura will do," one European trader told Argus today. "It had to do something to avoid losing everything. It has to save what it can save."

The trader questioned whether Trafigura will want to be a major zinc producer in the long term and said the firm could close Nyrstar plants or look to sell Nyrstar to another company.

Nyrstar's zinc output rose by 4pc on the year to 1.06mn t last year, below revised guidance of 1.07mn-1.09mn t, while lead output fell by 7pc to 160,000t.

Nyrstar has mining, smelting and other operations in Europe, the Americas and Australia.