Nyrstar Plans to Spend 2 Billion Euros on Mining to Meet Targets
Jan 18, 2012 1:01 AM GMT+0100 .
Nyrstar NV (NYR), the world’s largest zinc smelter, plans to pay as much as 2 billion euros ($2.5 billion) to buy mines, and earn 50 percent of its profit target for 2016 from the assets, Chief Executive Officer Roland Junck said.
“We need to develop our existing footprint to achieve half of that result, and the additional footprint we need to acquire to deliver the rest,” Junck said in an interview in his office in Zurich overlooking the Swiss Alps. “There’s always the path of acquisition and the improvement of the new acquisition.”
Junck, 56, who as CEO of Arcelor SA oversaw a 2006 merger with Mittal Steel Co. to create the world’s largest steelmaker, plans to transform Nyrstar into a broader metals producer. Since joining the company in 2009, he has paid 1.1 billion euros for mines and mining stakes from Greenland, to the U.S., Peru, Chile and Mexico to gain from margins that are higher than smelting.
“We take a positive view on Nyrstar’s ongoing strategic shift towards mining,” said Eugene King, a Goldman Sachs Group Inc. analyst in London. “This increases its attractiveness, creating a higher margin business and one that benefits from vertical integration between mining and smelting.”
Nyrstar’s strategy may help it compete with rival zinc producers including Sweden’s Boliden AB and Canada’s Teck Resources Ltd. whose shares outperformed partly because of their greater diversification in mining and metals. Nyrstar’s stock price has jumped 3.5 times since Junck took office in February 2009, while Boliden increased sevenfold and Teck Resources ninefold.
Partnering With Glencore
The company plans to buy mines containing multiple metals including zinc, copper, lead, silver and gold to meet a goal of generating annual earnings before interest, tax, devaluation and amortization of 1.5 billion euros by 2016, Junck said. Nyrstar aims to boost margins with mines containing copper, he said.
It’s also studying buying mines with partners including its 8 percent-shareholder Glencore International Plc, the largest publicly traded commodity company, Junck said. That’s even after Nyrstar failed to agree with BHP Billiton Ltd. (BHP), the biggest mine operator, on a joint bid for Lundin Mining Corp. (LUN), according to two people familiar with the matter who declined to be named.
“We know we can’t come to the table with a bag of money, we have to look at other angles,” Michael Morley, Nyrstar’s chief corporate and development officer, said in the interview. “If that requires partnerships, we’d absolutely entertain working with partners,” he said.
Swedish Mine
The company has good relations with Glencore, Junck said. “We discuss issues, and if there’s an opportunity, we would do it,” he said.
Lundin’s Zinkgruvan mine in Sweden is “the type of mine we’d be looking for,” Junck said, declining to comment on any talks or the possibility of reapproaching the company.
Nyrstar, which raised 490.1 million euros for acquisitions in a share sale in March and 525 million euros from bonds, will use loans for new purchases as the loss of a third of its stock market value in the past year makes equity fundraising costlier.
“We prefer to fund new acquisitions through debt,” Junck said. “We consider net debt gearing of 30 to 35 percent as the right rate,” allowing the company to raise about 700 million euros. “We are comfortable stretching it given the nature of the assets we are looking for; producing and cash-generative.”
Improving Margins
Goldman’s King recommended investors buy Nyrstar in a note last week, as the metal company’s improving margins and self- sufficiency build the case for a rerating of its shares.
The producer plans to achieve 500 million euros of its 1.5 billion-euro Ebitda target from current operations, another 250 million euros from expansion and cost improvements, as much as 500 million euros from mine acquisitions and about 250 million from expanding the new assets’ earning potential, Junck said.
Nyrstar, which in June agreed to buy Breakwater Resources Ltd. for C$619 million ($626 million) to gain mines in Canada, Honduras and Chile, increased its mining and production capacity to about 475,000 tons of zinc metal. It plans to get about half of its earnings from the mines this year, Junck said.