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Trafigura scores metals deal with Nyrstar as Noble contract ends

Friday, February 5, 2016 - 08:00
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Nyrstar NV is winding down a zinc-supply accord with Noble Group Ltd, opening the way for more of its metal to go to top shareholder Trafigura Group. Europe's largest zinc smelter also secured US$150 million from Trafigura to be repaid with shipments.

[LONDON] Nyrstar NV is winding down a zinc-supply accord with Noble Group Ltd, opening the way for more of its metal to go to top shareholder Trafigura Group. Europe's largest zinc smelter also secured US$150 million from Trafigura to be repaid with shipments.

Trafigura's funds will be paid back with physical zinc deliveries over three years, Nyrstar Chief Executive Officer, Bill Scotting said in an interview. The deal with Noble, a rival to commodity trader Trafigura, will be allowed to expire at the end of the year.

"We have various options to do what we want with the offtake," Mr Scotting said. "This particular one winds down at the end of 2016. And we will be working through this year to decide what we'll do subsequently."

Commodity traders like Trafigura, which owns about 24 per cent of Belgium-based Nyrstar, covet secure flows of raw materials that increase the opportunity for profits. Trafigura stepped in to provide financing for Nyrstar as the smelter struggled with plunging metals prices and faces a 415 million euro (S$650 million) debt repayment in May.

Based in Singapore with major trading operations in Geneva, Trafigura has agreed to buy as much as 125 million euros of a 250 million euro to 275 million euro rights offering planned by Nyrstar in the first quarter.

Trafigura "are very supportive of our strategy, what we've articulated; exiting mines, the focus on metal processing, and restructuring the balance sheet," Mr Scotting said. Agreeing to underwrite the rights offering is "a strong statement of support," he said.

The trader's control over Nyrstar has grown in the past year, with two of its nominees appointed to the zinc company's board. Christopher Eger, formerly on Trafigura's mergers and acquisitions team, was named Nyrstar's chief financial officer in November.

Under a so-called relationship agreement between the two companies, Trafigura said it wouldn't purchase more than 49 per cent of Nyrstar's shares. The trader is permitted to nominate directors to Nyrstar's board as long as they do not constitute a majority.

The new US$150 million metals offtake deal follows an agreement that Trafigura secured last year to supply zinc concentrates to Nyrstar and its smelting operations.

Victoria Dix, a Trafigura spokeswoman in Geneva, confirmed that it had completed the new US$150 million prepayment financing deal. She declined to comment on the firm's potential interest in handling the Nyrstar metal currently marketed by Noble, saying only that Trafigura would consider any tender offered by Nyrstar on commercial terms.

Nyrstar chose Noble, Asia's largest commodity trader, to market part of its European output in 2013. The agreement replaced a deal with Glencore Plc, the largest metals trader. As part of a remedy package with the European Commission relating to its merger with Xstrata Plc, Glencore agreed to terminate the Nyrstar offtake accord.

Glencore continues to sell Nyrstar's zinc and lead produced outside the European Union.

BLOOMBERG