Singapore 12/11/2015 - Nyrstar’s recent measures - which includes an equity increase, a zinc prepay financing deal, a potential mining division sale, and an off-take agreement with Trafigura - aimed at preserving its balance sheet are credit positive for the company, said Moody’s Investors Service on Thursday.
“These initiatives are credit positive for Nyrstar, because once implemented they will support its financial and liquidity profile, which we consider weak,” the ratings agency said.
Major zinc producer Nyrstar said on Monday that it was pursing strategic alternatives for its mining assets, both individually and as a portfolio, which could result in additional mine suspension, asset disposal or a full exit from mining.
Nyrstar also announced a 250-275 million euro ($269-296 million) rights offering which shareholder Trafigura plans to subscribe for up to 125 million euros, and a 150-200 million euro refined zinc metal prepay financing deal.
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, which consist of 415 million euros worth of retail bonds due in May 2016, Moody’s said.
The sale of Nyrstar’s mining portfolio has the potential to raise sizable cash proceeds, given the mining assets’ book value of approximately 623 million euros as of June 2015.
“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,” Moody’s said.
A sale also would remove a capital intensive, cash-burning business given currently low zinc prices, it noted.
Nyrstar’s mining division reported negative EBITDA 17 million euros and burned through approximately 90 million euros of cash during the first nine months of 2015 because of weak zinc prices, lower productivity and high capital requirements.
The division will remain loss-making and continue to burn cash - given the lower zinc price assumptions for 2016 compared to 2015 - but the cash burn will be at a slower pace of 60 million euros on an annualised basis mainly because of Nystar’s implementation of cost-saving measures, Moody’s said.
Nyrstar’s new commercial agreement with Trafigura - whereby Trafigura starting next year will supply Nyrstar with zinc and lead concentrates - will support Nyrstar’s metal processing feed requirements, which will increase starting in mid-2016 as its redeveloped Port Pirie smelter ramps up to full capacity, added Moody’s.
But Moody’s cautioned that the announced measures remain subjected to a number of conditions, including majority approval by Nyrstar’s shareholders, due diligence and regulatory approval.