Nyrstar’s meteoric rise as a miner

Vancouver — Born of two established metals companies as a pure smelting play in 2007, Brussels-listed Nyrstar NV has since grabbed a commanding position in the zinc supply chain with no sign of slowing down.

The major shift came in 2009 when zinc prices dropped to around 50¢ per lb. and the company decided it would start buying mines to tap into the greater profit margin potential. The company now has 6 smelters, 9 wholly-owned mines and 2 development projects and an appetite for more.

First came the Mid-Tennessee zinc mine complex for $15.7 million, which bankrupt Strategic Resource Acquisition had just spent some $150 million refurbishing, and which complemented perfectly Nyrstar’s nearby Clarksville smelter. Then the company snapped up 85% of the Coricancha Mine in Peru for US$15 million while it was in care and maintenance; bought a 20% stake in Ironbark Zinc (IBG-A) and its big Greenland zinc deposit for roughly US$4.5 million; and rounded out 2009 with the purchase of the East Tennessee zinc mine from Glencore for US$126 million.

Hardly slowing down in 2010, the company secured 1.25 million tonnes of zinc concentrate from Talvivaara Mining (TALV-L) in Finland for US$335 million; bought the remaining 15% of Coricancha for US$4.8 million; increased its stake in Greenland-focused Ironbark by 10% for about US$13 million; acquired two more mines in Peru — Contonga and Pucarrajo — for US$33 million; and led an ultimately unsuccessful US$282-million bid for CBH Resources, getting beaten out by Toho Zinc of Japan.

In 2011 Nyrstar again showed little sign of losing momentum as it made some of its biggest acquisitions yet, spending $409 million on Farallon Mining for its G-9 mine and surrounding Campo Morado project in southwest Mexico, and $663 million on Breakwater Resources for its four polymetallic mines in Chile, Honduras, British Columbia and Quebec.

Thanks to its voracious buying spree, the company went from having no metal production in 2008 to producing 51,800 tonnes of zinc in concentrate, 2,200 tonnes of copper in concentrate, 1,900 tonnes of lead in concentrate, 14,400 oz. gold and 906,000 oz. silver in the third quarter of 2011; with full 2011 production numbers due February 24. At its smelting operations the company processed 244,000 tonnes of zinc plus 51,000 tonnes of lead in the quarter.

By the end of 2012, the company is projecting it will be able to produce 475,000 tonnes of zinc in concentrate per year, putting it among the top-five zinc mining companies in the world. Thanks to its 2011 acquisition of several polymetallic mines, the company expects to be able to also produce 28,000 tonnes of lead in concentrate per year; 15,000 tonnes of copper in concentrate per year; and when combining mining and smelting, some 23.8 million oz. silver and 119,000 oz. gold per year. As to smelting titles, with its 1.1 million tonnes of annual zinc capacity, it is already the world’s largest zinc smelter.

As though such dramatic growth were not enough, the company has set a target of quintupling its size by 2016 by reaching €1.5 billion in earnings before interest, taxes, depreciation and amortization. The company plans to do this by ramp up and optimise its now substantial property holdings, but much more so by continuing its aggressive acquisition strategy. The company has laid out its plans to meet roughly 50% of its 2016 earnings target through new acquisitions.

Nyrstar CEO Roland Junck, who joined the company in 2009 and spearheaded its acquisition strategy, recently told Bloomberg that the company plans to spend as much US$2.5 billion on new mines to meet future growth targets. Nyrstar is also apparently not keeping its acquisition targets small, with Bloomberg also stating that Nyrstar tried to partner with BHP Billiton (BHP-N, BHP-A) for a joint bid for Lundin Mining (LUN-T).

The US$2.5 billion will require the company to raise substantially more than it already has in the past three years. Already since 2009 Nyrstar has issued a total of €870-million in bonds, set up a €500-million commodity finance credit facility, and completed a €490-million rights offering. Nyrstar has set out a ‘steady-state’ net debt gearing target of 30 to 35% going forward.

As to internal growth, investors will get a better sense of just what is possible when Nyrstar releases updated reserves and resources following a thorough review of its varied assets, expected out in the first quarter of 2012. So far the company has managed to reach its goal of supplying 43% of its smelting material from its own mines, but with zinc supply constraints projected to start in 2014, the company wants to be well-positioned to increase that amount.

Listed on the Euronext Brussels, the company recently closed at €7.29 with 164.2 million shares out for a market capitalisation of €1.2 billion. Glencore International (GLEN-L) holds 8% of Nyrstar’s stock.