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CEO Of Europe's Largest Zinc Producer Hints At Default: Bonds Hit Record Lows, Stock Plunges Most Ever

Tyler Durden's picture




 

It had been a while since we had any major news involving the ongoing devastation in the global mining sector courtesy of China, where as we previously reported more than half of the local commodity companies can't cover their interest expense and are thus caught in a deflationary race to the bottom even as the government has no choice but to bail them all out.

Indeed, complacency seemed ready to set back in, with Glencore stock recently rising as high as its recent equity offering price of 125p. And then today we noticed that not only is Glencore's CDS back above 700 bps, the widest it has been in three weeks, but that another mining company has fallen into the market's crosshairs, this time Belgium-based (with Zurich HQ) Nyrstar NV, Europe's largest refined-zinc producer, whose stock crashed the most since its initial public offering in 2007, while it bonds tumbled to a yield of 19%, suggesting a default may be imminent.

The official version is that this plunge happened after the company said "its mining business is being challenged by the rout in metals."

According to Bloomberg, "Investment in the company’s Port Pirie smelting operations in Australia will cost A$563 million ($405 million), about 10 percent more than previously forecast, it said in a statement Thursday. Nyrstar shares slumped as much as 27 percent, the most since at least October 2007, to the lowest in six years."

"Clearly, the business has underperformed for some time," Nyrstar CEO Bill 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."

However, none of this is news, or should be news.

What was news was the CEO's admission in Belgium's Tijd that the company "can't guarantee the full repayment of the company's notes due in May 2016. In other words, a default, by any other name.

So while other commodity traders such as Glencore and Trafigura are desperate to preserve the image that they have no liquidity problems, Nyrstar is the first to hint the D-word.

The reaction in the company's publicly traded bonds was swift and brutal: "Nyrstar’s 350 million euros of bonds due September 2019 erased gains made in October and dropped 19 cents on the euro to 71.6 cents, the lowest on record. The bonds now yield 19.1 percent, according to data compiled by Bloomberg. The company is evaluating debt and equity market alternatives to address a 415 million-euro bond maturity in May 2016, it said. The bond dropped 13.5 cents with a yield of 35.6 percent."

Putting that in context, a company which still has a $500MM market cap, has bonds yields nearly 20%. All this is coming to a commodity miner and/or trader near you, and perhaps this one first. From September 3, 2015:

Trafigura subsidiary Urion Holdings Ltd. increased its interest in Nyrstar to 68 million shares, or 20.02 percent of the voting rights, as of Aug. 28 from 52 million shares or 15.3 percent, according to a regulatory filing.

 

Commodity trader Trafigura Beheer BV said it has no immediate plans to bid for control of Nyrstar NV after raising its stake in the world’s largest producer of refined zinc to more than 20 percent.

 

“This is a continuation of our investment into Nyrstar,” Andrew Gowers, a Geneva-based spokesman for Trafigura, said by phone on Thursday. “It is a financial investment.”

Judging by the 30%+ loss since then, it was also a rather terrible financial investment, and perhaps a reason to wonder about the financial acument of companies such as Trafigura which are throwing money around as if oil is still back at $100, not to mention another reason to look at all the cross-asset holdings among a commodity mining/trading sector which - unless commodity prices rebound dramatically in the coming months - is insolvent across the board.

 

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Thu, 10/22/2015 - 12:23 | 6698862 fudge
fudge's picture

fuck i'm galvanised on this news :D:D

Thu, 10/22/2015 - 12:26 | 6698872 Charles Wilson
Charles Wilson's picture

If we run out of zinc, where will we get our money?

Thu, 10/22/2015 - 12:31 | 6698893 Sudden Debt
Sudden Debt's picture

Chips... potato chips. And if you don't spend it, you can eat it!

It's money... you can eat it... if you want to you can share them but why would you?!

Chips! In potatoes we trust!

Thu, 10/22/2015 - 12:41 | 6698941 fudge
fudge's picture

my pen drive shits rainbow chips, all your chips are belong to us ;) :D:D

Thu, 10/22/2015 - 13:31 | 6699170 Tom Servo
Tom Servo's picture

plastics... lol

Thu, 10/22/2015 - 12:57 | 6699025 junction
junction's picture

China stops buying minerals and the mining industries go into collapse.  Next up, the multi-million dollar new high rise apartment market.  I am sure many off those 10 million dollar apartment sales you read are bogus, those apartments never go to closing.   

Thu, 10/22/2015 - 12:28 | 6698880 Sudden Debt
Sudden Debt's picture

Mittal... cough... Mittal... Arcelor...cough... close all factories and move them to india... cough....

 

I know Nyrstar pretty well, as I do Arcelor. People on the hot line make a shitload of money. They make management salaries.

Now that's pretty expensive. 

And then there are the environnemental issues.

None of that crap is present in India.

If you die, you family gets a bag to burry you in, that's it.

And environne... tla la la??? They've never heard of it!!!!

 

Thu, 10/22/2015 - 13:53 | 6698918 KnuckleDragger-X
KnuckleDragger-X's picture

Much easier that way. All that magic stuff that greenie's love so much has to be reprocessed sooner or later and most of it is quite toxic, so ship it to a third world country with no real rules and let little brown brother pay the price......

Thu, 10/22/2015 - 12:54 | 6699005 Make_Mine_A_Double
Make_Mine_A_Double's picture

Last time I was in Wallonia (okay - it was about 20 years ago) I still saw foundries dating back to King Leopold's time.

I'm sure Arcelor is using top tech, but given cost of biz in Belgium - well I would say not a long term proposition.

Thu, 10/22/2015 - 12:29 | 6698885 pods
pods's picture

Surprise, another company involved in the real world is in trouble.

Maybe they should have just had some kind of virtual zinc mining app?

pods

Thu, 10/22/2015 - 14:32 | 6699395 o r c k
o r c k's picture

Maybe they should just borrow zinc from the future.

Thu, 10/22/2015 - 12:44 | 6698957 ghostzapper
ghostzapper's picture

Everything is awesome!!!

Thu, 10/22/2015 - 14:35 | 6699406 o r c k
o r c k's picture

Oh Mr. Yellen: have we reached full employment yet?

Duck and cover

Thu, 10/22/2015 - 12:45 | 6698966 RougeUnderwriter
RougeUnderwriter's picture

If these big guys tank - that is systematic risk as major banks will be skrewed

Thu, 10/22/2015 - 12:51 | 6698990 CheapBastard
CheapBastard's picture

So, is this " liftoff "?

Thu, 10/22/2015 - 12:57 | 6699020 Possible Impact
Possible Impact's picture

So what about the Kosovo Trepca Mines?

(one of the big reasons for the NATO peace keeping operation there...) 

 

 

Trepca Mines
https://en.wikipedia.org/wiki/Trep%C4%8Da_Mines

NATO troops seize mining complex
http://www.iacenter.org/folder04/kosovo_mines2.htm

Kosovo Miners Stay Deep Underground in Row Over Mine's Fate
http://www.voanews.com/content/reu-kosovo-miners-stay-underground-trepca...

-excerpt-

The Trepca complex of lead, zinc and silver mines once employed 20,000 people and accounted for the majority of the former Yugoslavia's mineral wealth.

Since Kosovo's 1999 breakaway from Serbia in war, Trepca, which straddles Kosovo's Serb-Albanian ethnic divide, has been held in trust and readied for sale by an agency created by the United Nations.

However, the Privatization Agency of Kosovo (KPA) has failed to come up with a plan for the mine's future, partly due to its murky ownership structure and numerous creditor claims.

Although managers at the mine estimate the reserves could be worth some $11.6 billion, its uncertain future has stymied development and Trepca currently operates at a minimum level of output just to keep the pits alive.

Citing the risk of the company being dismembered by creditors, Kosovo Prime Minister Isa Mustafa said last Friday his government would declare Trepca "public property." But it swiftly backed down, saying on Monday that it would give KPA a further three years to restructure the complex.

Thu, 10/22/2015 - 13:29 | 6699159 taketheredpill
taketheredpill's picture

NYR = IMMINENT

Thu, 10/22/2015 - 14:35 | 6699410 silverer
silverer's picture

Maybe they're just testing the waters for some free money.  You know how the EU is.

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