Debt-laden Nyrstar NV (EBR:NYR), the world's largest producer of refined zinc, is exploring the possibility of selling all its mines and getting out of zinc mining completely. Stung by zinc prices that have fallen 24% this year due to falling demand, the company is looking at $447 million in bonds coming due in next year. Initial plans to offer up to $296 million in stock to pay for the debt sent its share price tumbling 27%. Nyrstar announced an amended plan Monday, in which Trafigura, the world's second-largest metals trader, will buy as much as $135 million of the stock offering.
The deal calls for Trifigura, which already owns more than 20% of Nyrstar's stock, to supply Nyrstar with zinc concentrate and buy the resulting refined zinc. The agreement prohibits Trifigura from obtaining more than a 49% stake in Nyrstar or appointing a majority to its board of directors. It also exempts Trifigura from making a tender offer for all outstanding shares once its stake exceeds 30%.
If Nyrstar doesn't go through with plans to sell its mining division, it still plans of offloading assets. It has already shut down two zinc mines (one each in Mexico and Canada,) and announced that it could cut ore production by as much as 400,000 metric tons as it mothballs unprofitable operations.
Mining behemoth Glencore (LON:GLEN) announced last month that it was reducing zinc production by 500,000 metric tons, nearly 4% of global output. This means we may see around a 7% reduction in zinc supplies next year. Zinc prices couldn't hold on to gains made after Glencore's announcement, so analysts are unsure whether Nyrstar's announcement will boost prices.
In addition to the agreement with Trifigura, Nyrstar's CEO said the company would sell up to €250 million in high-yield bonds, if necessary.
Precious metals investors should keep an eye on the lead and zinc mining industries, since the majority of the world's silver (and a good bit of gold) comes from these mines. If they collapse, then the oft-rumored silver shortage may become a reality.
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