London 09/11/2015 - Zinc and lead producer Nyrstar has entered into commercial agreements with its majority shareholder Trafigura, involving the procurement of concentrates and sale of refined metals, the company said in a call with shareholders this morning.
Nyrstar and Trafigura's long term commercial agreements will start on January 1, 2016 and last for five years, with an option of another five-year extension afterwards.
From then on the contracts will be "evergreen," Nyrstar CEO Bill Scotting said, with both companies at liberty to opt out.
Metal will be valued on "market-based prices with annually agreed premiums and treatment charges," a company statement said.
The agreements are part of Nyrstar's move to ensure profitability in light of multi-year-low zinc and lead metal prices; the company also announced it will consider suspending 400,000 tonnes of zinc concentrates production of its mining operations, with a view to selling the assets.
Additionally, the increased commercial connection between the two companies comes as Trafigura confirmed today it plans to increase it's shareholding in Nyrstar above its current 20 percent ownership and board member status.
Nyrstar is one of the world's largest zinc and lead metal producers and by far the largest in Europe, smelting 1.1 million tonnes of zinc and 178,000 tonnes of lead in 2014.
GLENCORE, NOBLE CROSSOVER - 150,000 TONNES LEFT TO MARKET
The agreement brings into focus Nyrstar's longstanding commercial agreements with Trafigura's fierce trading rivals Glencore and Noble.
All commodity grade zinc and lead that Nyrstar produces at its Clarksville (US), Hobart and Port Pirie (both Australia) smelting operations is marketed by Glencore.
Additionally, the company has a strategic off-take and marketing agreement with Singaporean trading house Noble, involving 200,000 tonnes of commodity grade zinc produced by Nyrstar's European smelters.
For Trafigura this leaves Nyrstar's remaining output, "approximately 150,000 tonnes [of zinc] not marketed via the agreement with Noble," as potentially available according to a 2014 operations report.
CEO Scotting was cautious when questioned by investors about the material available for Trafigura to market, but did hint that the Dutch trader could play a commercial part in Nyrstar's non-commodity grade metals business.
"We have today only committed commodity grade material to the two offtake partners, there is still a volume of about half a million tonnes not committed to sell including speciality alloys," Scotting said during the call, adding that the amounts of metal would be flexible.
Accordingly the Nyrstar-Trafigura cooperation will likely come further into play when the former's contracts with other traders expire; Noble's on January 1, 2018, Glencore's in 2019.
CENTURY REPLACEMENT CONCENTRATES
The agreement also has significance in the concentrates market. In light of Nyrstar's eagerness to rid itself of its mining assets, the company will become increasingly reliant on Trafigura to source the concentrates it needs to produce metal.
This is heightened due to the shutdown of MMG'S Century mine in Australia; formerly the world's largest zinc mine, Century was a key supplier of high quality to Nyrstar's smelters in Australia.
As part of the agreement, Nyrstar will be "extending the purchase agreements for lead and zinc concentrates, to support processing post-Century and with new feed book requirements following the Port Pirie redevelopment," Scotting said.
Zinc prices on the London Metal Exchange have failed to markedly react to this morning's news. However, the LME's three-month contract is up $4 at $1,664 per tonne, and above Friday's one-month lows.
However, with cuts to market supply already announced by Glencore and Century's loss, zinc and lead concentrate treatment charges (TCs), the discounts paid to smelters for processing material, are declining on the spot market.
TCs for zinc concentrates were last at $185-195 per tonne on a Cost, Insurance and Freight basis to China, while high-silver lead concentrate levels were down $5 per tonne to $180-190.
(Editing by Martin Hayes)