Regulated Information
2018 Full Year Results
26 May 2019 at 23:45 CEST
HIGHLIGHTS:
-- Capital structure review initiated in October 2018 in response to
extremely challenging financial and operating conditions being faced by
the Company due to materially reduced Underlying EBITDA performance in H2
2018 and the maturity of certain liabilities during 2019
-- Group underlying EBITDA1 of EUR 99 million for 2018, a decrease of 52% on
2017, primarily driven by substantial reductions in zinc and lead
treatment charges, a weakening of the US dollar against the Euro (1.13 to
1.18), increased energy prices in Metals Processing and higher direct
operating costs at the mining operations, partially offset by increased
zinc metal and zinc in concentrate production (up 4% and 14%
respectively)
-- Metals Processing underlying EBITDA of EUR 135 million, down EUR
71 million year-on-year, driven by lower zinc treatment charges,
higher energy prices in Europe and Australia during H2 2018, the
suspension of operations at Port Pirie in December 2018, partially
offset by higher production of zinc, copper, silver and minor
metals; and
-- Mining underlying EBITDA of EUR 19 million, down EUR 28 million
year-on-year, driven by the negative EBITDA performance from the
restart and subsequent suspension of the Myra Falls mine and weak
production and operating cost performance at the Langlois and
Middle Tennessee mines, partially offset by lower zinc treatment
charges and continued operating improvements at the East Tennessee
mines
-- Balance sheet and liquidity
-- Following the Q3 2018 results announcement on 30 October 2018,
substantial working capital outflows were experienced during Q4
2018 and liquidity was substantially reduced
-- Net debt excluding zinc metal prepay of EUR 1,643 million at the
end of December 2018, an increase of EUR 541 million on 31
December 2017 which included the Perpetual Securities which are
now accounted for as financial liabilities. Net debt inclusive of
zinc metal prepay and perpetual securities of EUR 1,771 million at
the end of December 2018, an increase of EUR 408 million on 31
December 2017
-- New USD 650 million committed working capital facility from
Trafigura implemented in December 2018, replacing the USD 250
million working capital facility with Trafigura, originally
entered into in May 2016
-- Net loss of EUR 618 million for 2018, primarily driven by a large income
tax expense with the partial de-recognition of deferred tax assets,
impairment of the carrying value of the Langlois and Myra Falls mines,
costs associated with the capital restructuring process and operating
loss incurred in 2018
-- Port Pirie Redevelopment continues to ramp-up in-line with management
expectations
-- Maintenance shutdown of the sinter plant, TSL furnace and blast
furnace during December 2018 to comply with the prescribed
lead-in-air limits at the end of Q4 2018 also allowed Nyrstar to
address a TSL furnace cooling issue and bring forward maintenance
previously scheduled for the blast furnace in January 2019
KEY FIGURES
EUR million
(unless otherwise indicated) FY FY % H1 H2 %
2017 2018 Change 2018 2018 Change
Income Statement Summary
Revenue 3,530 3,812 8% 1,930 1,883 (2%)
Gross Profit 1,074 1,118 4% 600 517 (14%)
Direct operating costs (875) (1,014) 16% (485) (529) 9%
Non-operating and other 6 (5) (181%) 6 (11) (289%)
Metal Processing U. EBITDA 206 135 (34%) 118 16 (86%)
Mining U. EBITDA 47 19 (59%) 28 (9) (132%)
Other and Eliminations U.
EBITDA (48) (56) 17% (26) (29) 11%
Group Underlying EBITDA 205 99 (52%) 120 (22) (118%)
Underlying EBITDA margin 6% 3% (56%) 6% (1%) (119%)
Embedded derivatives (3) 2 (169%) (3) 5 (257%)
Restructuring expense (4) (22) 432% (13) (9) (30%)
M&A related transaction
expense (0) (1) 493% (2) 0 (111%)
Other income 9 3 (68%) 2 1 (69%)
Profit / (Loss) on disposal
of investments 3 0 (102%) 0 0 -
Other expenditure 0 (30) - 0 (30) -
Underlying adjustments 4 (49) - (16) (33) 113%
Depreciation, depletion,
amortisation (156) (162) 4% (75) (88) 17%
Impairment gain / (loss) 126 (99) - 0 (99) -
Result from operating
activities 180 (212) - 30 (242) -
Net finance expense (including
fx) (207) (151) (27%) (76) (75) -
Income tax (expense) / benefit 37 (250) - 1 (252) -
Profit / (Loss) from
continuing operations 10 (614) - (45) (569) -
Profit / (Loss) from
discontinued operations 37 (4) - (4) 0 (100%)
Profit / (Loss) for the period 47 (618) - (49) (569) -
Basic Profit / (Loss) per
share from continuing ops 0.10 (5.60) - (0.22) (5.60) -
Capex (continuing and
discontinuing ops)
Metals Processing 303 126 (59%) 70 56 (23%)
Mining 56 101 80% 63 38 (40%)
Other 3 1 (50%) 1 1 37%
Group Capex 362 229 (37%) 134 95 (30%)
Cash Flow
Funds From Operations (FFO)(2) (358) (90) (75%) 18 (109) -
Free Cash Flow (FCF)(3) (472) (236) (50%) (53) (183) (241%)
EUR million 31 Dec 31 Dec 30 Jun 31 Dec
(unless otherwise indicated) 2017 2018 % Change 2018 2018 % Change
Debt and cash
Loans and borrowings, end
of the period 1,170 1,882 61% 1,276 1,882 48%
Cash and cash equivalents,
end of period (68) (239) 249% (78) (239) 205%
Net Debt Exclusive of Zinc
Prepay(4) 1,102 1,643 49% 1,198 1,643 37%
Zinc Prepay 75 128 71% 104 128 23%
Perpetual Securities 186 175 (6%) 186 175 (6%)
Net Debt Inclusive of Zinc
Prepay
and Perpetual Securities 1,363 1,771 30% 1,487 1,771 (56%)
FY FY H1 H2
2017 2018 2018 2018
Metals Processing Production
Zinc metal ('000 tonnes) 1,019 1,064 4% 528 536 2%
Lead metal ('000 tonnes) 171 160 (7%) 69 90 30%
Mining Production
Zinc in concentrate ('000
tonnes) 123 139 14% 70 70 -
Copper in concentrate ('000
tonnes) 2.1 1.6 (21%) 0.8 0.9 7%
Silver ('000 troy ounces) 553 439 (21%) 214 225 5%
Gold ('000 troy ounces) 1.9 2.1 8% 0.7 1.3 82%
Market(5)
Zinc price (USD/t) 2,896 2,922 1% 3,268 2,656 (19%)
Lead price (USD/t) 2,318 2,242 (3%) 2,456 2,091 (15%)
Silver price (USD/t.oz) 17.05 15.71 (8%) 16.65 15.02 (10%)
Gold price (USD/t.oz) 1,258 1,269 1% 1,319 1,229 (7%)
EUR/USD average exchange
rate 1.13 1.18 4% 1.21 1.15 5%
EUR/AUD average exchange
rate 1.47 1.58 7% 1.57 1.59 1%
Nyrstar NV ("Nyrstar" or the "Company" and, together with its
subsidiaries, the "Group") has previously announced that its
consolidated financial statements for the twelve months ended 31
December 2018 ("Full Year Results 2018"), were rescheduled to 24 May
2019 due to the need to complete the comprehensive capital structure
review of the Group. As was announced by the Company on 15 April 2019,
Nyrstar initiated a review of its capital structure (the "Capital
Structure Review") in October 2018 in response to the challenging
financial and operating conditions being faced by the Group. As
previously announced, these conditions included substantial working
capital and liquidity outflows experienced during the fourth quarter of
2018 and first quarter of 2019 necessitating the raising of urgent short
term funding. Combined with the Group's materially reduced Underlying
EBITDA performance in 2018 and the maturity of certain liabilities
during 2019, these factors resulted in the need to reconsider the
Group's capital structure.
The Capital Structure Review identified a very substantial additional
funding requirement that the Group is unable to meet without a material
reduction of the Group's indebtedness. As a consequence, the Capital
Structure Review has necessitated negotiations between the Group's
financial creditors in order to develop a deleveraging and funding plan
as part of a comprehensive balance sheet recapitalisation. Alternatives
to such a recapitalisation would place the future of the Group and its
stakeholders at severe risk. As at the date of this announcement, the
Company is in the process of implementing the recapitalision.
The Company has received from its auditor, and is publishing today, an
opinion issued in accordance with article 143, --2 of the Belgian
Company Code ("non-compliance opinion") on the basis that certain
information requested from the Company was not timely delivered. The
Company is working hard to deliver such information to its auditor with
the intention that the auditor will issue its audit opinion once it has
audited such information. The full-year results that are published
today will then again be published to the market, together with the
audit opinion that the auditor will then issue.
GROUP FINANCIAL OVERVIEW
Group gross profit for 2018 of EUR 1,118 million was up 4% on 2017,
driven by higher zinc production volumes in Mining and Metals Processing
and marginally higher zinc and gold prices which were both up 1%,
partially offset by deteriorating benchmark zinc treatment charge terms
and a weaker US dollar against the Euro.
Direct operating costs for 2018 of EUR 1,014 million increased 16% on
2017, due to higher zinc production volumes in Mining and Metals
Processing, higher electricity prices at the smelters, increased mining
costs as a result of the restart of operations at Myra Falls and the
ramp-up of mining operations at Middle Tennessee.
Group underlying EBITDA of EUR 99 million in 2018, a decrease of 52% on
2017, due to a weakening of the US dollar against the Euro, lower lead
and silver prices, a 15% reduction in the benchmark zinc treatment
charge, higher direct operating costs per tonne of zinc in both Mining
and Metals Processing.
Underlying adjustments in 2018 were a total of EUR 49 million,
comprising EUR 2 million of embedded derivatives, EUR (22) million of
restructuring expense, EUR 1 million of M&A related transaction expense
and EUR (30) million of other expenditure relating primarily to the
write-off of payments that were connected with the divestment of the El
Toqui mine in Chile.
Depreciation, depletion and amortisation expense for 2018 of EUR 162
million was up 4% year-on year.
In 2018, the Company recognised a non-cash, pre-tax impairment loss of
EUR 99 million (2017: impairment gain of EUR 126 million). This
impairment loss (2017: impairment gain) relates fully to pre-tax
impairment losses on Nyrstar's Mining assets (EUR 85.9 million) at
Langlois and Myra Falls and specific asset write-offs in Metals
Processing (EUR 11.4 million).
Net finance expense (including foreign exchange) for 2018 of EUR 151
million (EUR 207 million in 2017) primarily due to a net foreign
exchange gain of EUR 6.5 million in 2018 compared to a loss of EUR 59.9
million in 2017. The interest expense in 2018 of EUR 128.3 million was
higher than in 2017 (EUR 104.4 million).
Nyrstar recognised an income tax expense for the year ended 31 December
2018 of EUR 250 million (2017: income tax benefit of EUR 37 million)
representing an effective income tax rate of -68.9% (for the year ended
31 December 2017: -481.3%). The tax rate is impacted by non-recognition
of current year losses, and by the de-recognition of previous losses
relating mainly to Nyrstar Sales & Marketing AG, the US Group, and the
Canadian Group given it is not probable that these tax losses will be
used in the future considering forecast profit projections.
Loss after tax of EUR 618 million in 2018, compared to a net profit of
EUR 47 million in 2017, mainly as a result of the impairment charges
related to the write down of the carrying value of the Langlois and Myra
Falls mines, the partial de-recognition of Nyrstar Sales & Marketing AG
and Nyrstar US deferred tax assets due to reduced expected
recoverability and the operational losses incurred in 2018 and change of
control impacts.
Capital expenditure was EUR 229 million in 2018, representing a decrease
of 37% year-on-year driven by a substantial reduction in Metals
Processing from EUR 303 million in 2017 to EUR 126 million in 2018 with
the completion of the Port Pirie Redevelopment and a EUR 45 million
increase in Mining with the restart of the Myra Falls mine.
Net debt at the end of 2018 at EUR 1,643 million, excluding the zinc
metal prepay, was 49% higher compared to the end of 2017 (EUR 1,102
million at the end of 2017), predominantly due to substantial working
capital outflow during Q4 2018 due to higher commodity prices, no new
silver prepays in H2 2018, reduction in non-committed letter of credit
lines from banking counterparties, tightened credit terms with a number
of suppliers, the reclassification of EUR 82.5 million and EUR 50.7
million of prepayments for deliveries of silver metal and zinc metal
respectively from deferred income to loans and borrowing at 31 December
2018 as the Group had no ability to settle by physical delivery of
silver metal and zinc metal respectively from its own production and the
reclassification of perpetual securities (EUR 174.9 million at 31
December 2018) from equity to loans and borrowings(6) . The net debt
inclusive of the zinc metal prepay and perpetual securities at the end
of 2018 was EUR 1,771 million, up 30% compared to the end of 2017. Cash
balance at the end of 2018 was EUR 239 million compared to EUR 68
million at the end of 2017.
SAFETY, HEALTH AND ENVIRONMENT
"Prevent Harm" is a core value of Nyrstar. The Company is committed to
maintaining safe operations and to proactively managing risks including
with respect to people and the environment. At Nyrstar, we work together
to create a workplace where all risks are effectively identified and
controlled and everyone goes home safe and healthy each day of their
working life.
In 2018, we placed particular emphasis on the prevention of hand
injuries which account for a large portion of our total injuries. A
dedicated hand injury prevention program entitled Because some tools
cannot be replaced was introduced at all operations with the purpose of
eliminating unsafe conditions contributing to hand injuries, improving
tools and personal protective equipment, and changing at-risk behaviours
relevant to hand injuries. We also continued the implementation of the
Process Safety Management System launched in 2017 and strengthened
controls related to hydrogen explosion risks at our smelters.
The Group continued to make significant progress in safety performance.
No severe irreversible injuries occurred. The frequency rate of cases
with time lost or under restricted duties (DART) for the Company
achieved a new record low of 3.7, an improvement of 7% compared to a
rate of 3.9 in 2017. The frequency rate of cases requiring at least a
medical treatment (RIR) was 6.7, this is a 4% increase compared to 6.4
in 2017. More important, the number of days lost due to LTIs and RW
injuries reached a new record low of 202. This is 20% lower than the
previous best of 255 days lost by million working hours in 2017.
No environmental events with material business consequences or long-term
environmental impacts occurred during the period.
OPERATIONS REVIEW: METALS PROCESSING
EUR million FY FY % H1 H2 %
(unless otherwise indicated) 2017 2018 Change 2018 2018 Change
Treatment charges 286 232 (19%) 123 109 (11%)
Free metal contribution 351 378 8% 193 185 (4%)
Premiums 152 150 (2%) 76 74 (3%)
By-Products 166 216 30% 106 109 3%
Other (99) (111) 14% (47) (64) 37%
Gross Profit 855 863 1% 451 413 (8%)
Employee expenses (221) (218) (1%) (109) (108) (1%)
Energy expenses (227) (259) 14% (117) (142) 21%
Other expenses /income (202) (250) 24% (120) (130) 9%
Direct Operating Costs (649) (727) 12% (346) (380) 10%
Non-operating and other (1) (2) 155% 14 (16) (-213%)
Underlying EBITDA 206 135 (34%) 118 16 (86%)
----------------------------- ----- ----- ------ ----- ----- -------
Sustaining and growth 199 125 (38%) 68 57 (18%)
Port Pirie Redevelopment 104 1 (99%) 2 (1) (167%)
Metal Processing Capex 303 126 (59%) 70 56 (23%)
Metals Processing delivered an underlying EBITDA result of EUR 135
million in 2018, a decrease of 34% over 2017 due to lower treatment
charges, higher energy prices in Europe and Australia during H2 2018 and
the suspension of operations at Port Pirie in December 2018, partially
offset by higher production of zinc, copper, silver and minor metals.
Marginally stronger year-over-year gross profit (up 1%) at EUR 863
million in 2018 was mainly driven by higher zinc prices (up 1%) compared
to 2017 which were constrained by the zinc price collar hedging in place
at that time and higher production volumes of zinc metal and by-products,
largely offset by a 19% decrease in zinc and lead treatment charge
income. Annual 2018 zinc benchmark treatment charge terms were settled
during Q2 2018 at approximately 15% below the 2017 terms at USD 147 per
tonne of concentrate.
The total Premium gross profit contributions were relatively flat
compared to 2017 (down 2%), driven by marginally higher volumes and
relatively flat average realised premia rates.
By-product gross profit contributions were positively impacted by higher
gold and sulphuric acid prices and higher production volumes of copper,
silver, gold, indium and sulphuric acid compared to 2017. After a fire
in Q4 2015, the indium plant was re-built in 2016 and resumed production
by the end of Q1 2017 with 29.8 tonnes of indium metal produced in 2017
and a further ramped-up production volume of 42.6 tonnes in 2018.
Direct Operating Costs increased in 2018 (up 12% compared to 2017) at
EUR 727 million due to increased energy prices in Europe and Australia
and higher production volumes of zinc metal and by-products.
Capital expenditure spend in 2018 decreased by 59% on 2017, in-line with
the revised lower capital expenditure guidance provided for 2018 (EUR
130 million to EUR 140 million) compared to 2017 (EUR 303 million). The
lower capital expenditure has been driven by the completion of the Port
Pirie Redevelopment capex at the end of 2017 and a planned reduction in
sustaining capital spend in 2018 to historically normal levels.
EUR FY FY % H1 H2 %
DOC/tonne 2017 2018 Change 2018 2018 Change
Auby 448 471 5% 477 466 (2%)
Balen 501 482 (4%) 483 481 0%
Budel 407 467 15% 411 522 27%
Clarksville 481 562 17% 536 590 10%
Hobart 467 432 (8%) 453 413 (9%)
Port Pirie(7) 810 997 23% 1,117 905 (19%)
DOC/tonne(8) 546 594 9% 580 607 5%
FY FY % H1 H2 %
2017 2018 Change 2018 2018 Change
Zinc metal ('000 tonnes)
Auby 166 155 (6%) 78 78 0%
Balen/Overpelt 249 275 10% 137 138 1%
Budel 248 268 8% 133 136 2%
Clarksville 117 101 (14%) 52 49 (5%)
Hobart 238 264 11% 129 136 5%
Total 1,019 1,064 4% 528 536 2%
Lead metal ('000 tonnes)
Port Pirie 171 160 (7%) 69 90 30%
Other products
Copper cathode ('000 tonnes) 4.2 4.3 1% 1.6 2.7 65%
Silver (million troy ounces) 13.6 13.8 1% 4.9 8.9 8%
Gold ('000 troy ounces) 72.6 73.0 1% 25.7 47.3 84%
Indium metal (tonnes) 29.8 42.6 43% 21.4 21.2 (1%)
Sulphuric acid ('000 tonnes) 1,266 1,364 8% 653 712 9%
Metals Processing produced approximately 1.06 million tonnes of zinc
metal in 2018, representing a 4% increase on 2017. The increase in zinc
metal production year-over-year was despite the planned maintenance
shuts at Auby, Balen, Clarksville and Hobart; and was assisted by a lack
of material unplanned outages which had impacted production volumes in
2016 and 2017. However, zinc and lead metal production was impacted
during Q4 2018 by lower raw material inventory as a consequence of the
Company's liquidity constraints.
Lead metal production at Port Pirie of 160kt was down 7% year-over-year
due to a 38 day planned blast furnace maintenance outage in Q2 2018 and
a shut of the blast furnace for December 2018. During December 2018, the
Company chose not to operate the old sinter plant at Port Pirie in order
to further support reducing lead in air emissions which ended the year
below the defined limit. In addition, Nyrstar also performed maintenance
on the TSL furnace and blast furnace during December 2018. These
maintenance shuts were to address a TSL furnace cooling issue; and to
bring forward maintenance previously scheduled for the blast furnace in
January 2019. The TSL furnace resumed operation on 15 December 2018.
OPERATIONS REVIEW: MINING
EUR million FY FY % H1 H2 %
(unless otherwise indicated) 2017 2018 Change 2018 2018 Change
Treatment charges (23) (28) 20% (14) (14) 1%
Payable metal contribution 230 282 22% 160 122 (23%)
By-Products 18 16 (13%) 9 7 (22%)
Other (8) (15) 94% (7) (8) 15%
Gross Profit 218 256 17% 148 108 (27%)
Employee expenses (77) (92) 19% (42) (49) 15%
Energy expenses (20) (23) 13% (11) (11) 0%
Other expenses (80) (121) 52% (57) (64) 13%
Direct Operating Costs (177) (236) 33% (111) (125) 13%
Non-operating and other 6 0 (105%) (9) 9 (197%)
Underlying EBITDA 47 19 (59%) 28 (9) (132%)
----------------------------- ----- ----- ------ ----- ----- ------
Mining Capex 56 101 80% 63 38 (40%)
----------------------------- ----- ----- ------ ----- ----- ------
Mining underlying EBITDA of EUR 19 million in 2018 was EUR 28 million
lower than in 2017 due to the negative EBITDA performance from the
restart and subsequent suspension of the Myra Falls mine and weak
production and operating cost performance at the Langlois and Middle
Tennessee mines, partially offset by lower treatment charges and
continued operating improvements at the East Tennessee mines.
Mining capital expenditure in 2018 was EUR 101 million, up EUR 45
million on 2017, due primarily to the ramp-up of the Middle Tennessee
mines and the restart of the Myra Falls mine.
FY FY % H1 H2 %
DOC USD/tonne ore milled 2017 2018 Change 2018 2018 Change
Langlois 111 133 19% 139 126 (9%)
East Tennessee 40 38 (4%) 38 39 1%
Middle Tennessee 60 65 9% 64 67 4%
Myra Falls - - - - - -
Average DOC/tonne ore milled 55 57 4% 58 57 (1%)
'000 tonnes FY FY % H1 H2 %
unless otherwise indicated 2017 2018 Change 2018 2018 Change
Total ore milled 3,238 4,080 26% 2,075 2,006 (3%)
Zinc in Concentrate
Langlois 34 24 (31%) 12 12 5%
Myra Falls - 0.6 - - 0.6 -
East Tennessee 66 76 15% 36 40 12%
Middle Tennessee 22 39 75% 22 17 (26%)
Total 123 139 14% 70 70 -
Other metals
Copper in concentrate 2.1 1.6 (21%) 0.8 0.9 7%
Silver ('000 troy oz) 553 439 (21%) 214 225 5%
Gold ('000 troy oz) 1.9 2.1 8% 0.7 1.3 82%
Nyrstar's Mining operations produced approximately 139kt of zinc in
concentrate in 2018, an increase of 14% compared to 2017. The total mine
production of zinc in concentrate in 2018 was marginally below the
revised full year guidance range of 140kt to 150kt. This lower level of
zinc in concentrate production has been largely due to disappointing
production performance of the Langlois and the Middle Tennessee mines
and commercial production at the Myra Falls mine commencing slightly
later than had been originally anticipated at the start of the year and
the impact of the suspension of ore extraction at year end to address
deficiencies identified in compliance orders from the Ministry for
Energy, Mines & Petroleum Resources in British Columbia.
OTHER DEVELOPMENTS
Port Pirie Redevelopment
On 1 February 2019, Nyrstar published an operational and financial
update which included, amongst other items, a financial update with
regards to the Port Pirie Redevelopment. The Company provides the
following additional clarification with regards to the latest Port Pirie
Redevelopment guidance.
The historic and normalised forecast pro-forma Underlying EBITDA for
Port Pirie, Hobart and Australian Metals Processing is summarised in the
table below.
Pro-forma Underlying
EBITDA EURm 2016A 2017A 2018A 2019F 2020F
Port Pirie 8 18 (11) 38 56
Hobart 51 40 31 57 69
Australian Metals Processing 59 58 20 95 125
The total pro-forma Underlying EBITDA guidance of EUR 95 million and EUR
125 million for Australian Metals Processing in FY 2019 and FY 2020
respectively is the aggregate of the total pro-forma Underlying EBITDA
contribution from both the Port Pirie and the Hobart smelters under
normalised liquidity and operating conditions. This guidance is not
incremental (or uplift) as was the case for the Port Pirie Redevelopment
guidance provided before 1 February 2019 and will be materially
negatively impacted by the liquidity constraints that have been
experienced by the Group in Q4 2018 and H1 2019. The normalised
Underlying EBITDA guidance is the total pro-forma EBITDA contribution
from the two Australian smelters.
The main factors driving the negative pro-forma Underlying EBITDA result
for Port Pirie in 2018 were a combination of increased costs due to the
continued ramp-up of the TSL furnace with the parallel operation of the
sinter plant and higher energy prices, production outage in December
2018 and technical process bottlenecks which reduced the recovery of
metal from the feed. Other macro factors, such as lower lead treatment
charges and metal prices also negatively impacted the pro-forma
Underlying EBITDA at Port Pirie.
The allocation of additional costs to residues between 2016 and 2018 has
had an impact on the guided pro-forma Underlying EBITDA contribution
from the Port Pirie Redevelopment in FY 2019 and to a lesser extent in
FY 2020. As was disclosed in Nyrstar's press release on 1 February 2019,
the processing of historical inventory will provide a cash flow benefit
of approximately EUR 70 million in FY 2019. If there had not been costs
allocated to these residues in 2016 to 2018, the Underlying EBITDA
contribution from Port Pirie in FY 2019 would be approximately EUR 70
million higher.
The other main reasons for the current lower (but still material)
pro-forma Underlying EBITDA contribution guidance from the Port Pirie
Redevelopment as compared to previous guidance, are:
-- lower metal recovery assumptions as a result of technical process
bottlenecks at Port Pirie, which results in a reduction in free metal
extracted from all feed processed by Port Pirie. These bottlenecks
(primarily the slag fumer and copper plant at Port Pirie) were identified
in the preparation of the 5-year Business Plan for the capital structure
review process and were incorporated in the pro-forma Underlying EBITDA
modelling for Australian Metals Processing; and
-- the application of one year of actual operating data instead of the
projected data which Nyrstar previously needed to rely on.
As was indicated in the operational and financial update published on 1
February 2019, the Metals Processing segment profitability of both the
Australian sites are intrinsically linked by the raw material flows
between the two sites and are only possible due to the Port Pirie
Redevelopment. In the absence of the Port Pirie Redevelopment, the
Hobart and Port Pirie sites would both be non-operational and would not
contribute EBITDA to the Metals Processing segment. Furthermore, the
pro-forma Underlying EBITDA of the two sites individually, but not of
Australian Metal Processing overall, depends on the internal re-charge
arrangements between the two sites for internal residues that are used
as feedstock at the sites. For this reason, to provide more clarity, the
Company has decided to show the proforma Underlying EBITDA for
Australian Metal Processing with a breakdown of this figure to Port
Pirie and Hobart.
The total project cost for the Port Pirie Redevelopment was
approximately AUD 714 million. This is inclusive of the feasibility
study costs and project management labour costs.
Management changes
In connection with the capital structure review process, Nyrstar
announced on 18 January 2019 that Mr. Martyn Konig had taken up the role
of Executive Chairman and that Mr. Roman Matej had been appointed to
serve as Interim Chief Financial Officer. Mr. Michel Abaza, the former
Chief Financial Officer, left the Nyrstar Group with immediate effect.
Strategic foreign exchange hedges
Since 2016, Nyrstar has entered into a series of 12 month rolling
foreign exchange options to hedge the Company's monthly exposure related
to the direct operating costs denominated in Australian dollars (AUD),
Canadian Dollars (CAD) and in Euro (EUR) utilising put and call collar
structures. During the course of 2018, EUR/USD exposure was unhedged in
H1 2018 and hedged on a fixed forward basis at 1.18 in H2 2018. For the
AUD/USD transactional exposure, various collars were executed resulting
in a weighted average collar of 0.70 to 0.80 for approximately 100% of
2018. For the CAD/USD transactional exposure on Langlois, various
collars were executed resulting in a weighted average collar of 1.32 to
1.36 for approximately 100% of 2018. Transactional CAD/USD currency
exposure for the Mining segment was hedged with a fixed forward of 1.32
in 2019. In January and February 2019, Nyrstar unwound all of its
strategic forward foreign exchange hedges due to the loss of credit
lines from the hedge counterparties.
Strategic metal price hedges
In H1 2018, Nyrstar had in place zinc price collar hedges to protect 70%
of total free metal produced at the zinc smelters and North American
mines within a price range of USD 2,300/t and USD 3,094/t. Above and
below these prices, Nyrstar's exposure was limited to 30% of the total
free metal produced. In H2 2018, Nyrstar had in place zinc price collar
hedges to protect 50% of total free metal produced at the zinc smelters
and North American mines within a price range of USD 2,600/t and USD
3,842/t. Above and below these prices, Nyrstar's exposure was limited to
50% of the total free metal produced.
During 2018, Nyrstar continued with its 12 month rolling hedging
programme and had hedged the majority of its zinc free metal exposure
(150kt) for the Mining segment at c. USD 3,000/t. Zinc in concentrate
production in 2020 was also partly hedged with approximately 16kt hedged
at a zinc price of c. USD 2,900/t. In December 2018, Nyrstar terminated
all of its strategic metal hedges to provide additional liquidity to the
business.
Metal at Risk Hedging
At any given time Nyrstar holds metal, either as work-in-progress or
finished good inventory, that has been "priced-in" but not "priced-out".
As this metal remains exposed to fluctuations in the underlying metal
price until it is "priced out", it is called "Metal at Risk". The actual
Metal at Risk at any given point in time fluctuates with deliveries of
raw materials and production levels.
As a risk mitigation process, Nyrstar has always consistently monitored
its Metal at Risk on an ongoing basis and undertaken hedging to mitigate
the metal price exposure in what Nyrstar refers to as "transactional
hedging". The price of placing these transactional hedges is dependent
on whether future or "forward" prices are higher or lower than current
or "spot" prices, as indicated by the shape of the forward underlying
metal price curve. Future prices can be either higher or lower than
current prices, depending on a range of factors and can change quite
rapidly at times. The hedges required to hedge Nyrstar's Metal at Risk
position are determined by whether the net position is positive, meaning
Nyrstar has more metal "priced-in" than is "priced-out", or
alternatively is negative, meaning Nyrstar has more metal "priced-out"
than is "priced-in".
As announced by Nyrstar on 1 February 2019, it has been continuing to
manage tightly its cash and inventory levels and has been evaluating
additional measures to improve its liquidity position. During the course
of March 2019, Nyrstar closed out all of its Metal at Risk hedge
positions to release cash collateralized against the credit lines. As a
consequence of closing out these Metal at Risk hedges, Nyrstar realised
a one-off cash benefit of approximately USD 40 million and is now fully
exposed to fluctuations in metal prices for its Metal at Risk.
Cyber attack
In January 2019, Nyrstar was subject to a cyber-attack. Certain IT
systems, including email, were impacted. The cyber-attack issue was
subsequently contained and resolved. The operational and financial
impact of the cyber-attack on Nyrstar's Metals Processing and Mining
operations was not significant.
Perpetual Securities Distribution Amount
On 29 April 2019, Nyrstar Port Pirie Pty Ltd notified the holder of the
Perpetual Securities that it elected to cash pay all of the Distribution
Amount (interest/fees) on the Perpetual Securities for the period 27
November 2018 to 27 May 2019 (being AUD 13.2 million) and also that it
would redeem 29,125 Perpetual Securities with a value of AUD 29.1
million. This is the targeted number of Perpetual Securities for the
relevant period under the financing arrangement involving the State of
South Australia. Nyrstar will pay the aggregate of both amounts, AUD
42.3 million (EUR 26.1 million) on 27 May 2019.
SENSITIVITIES
Nyrstar's results continue to be significantly affected during the
course of 2018 by changes in metal prices, exchange rates and treatment
charges. Sensitivities to variations in these parameters are depicted in
the below table, which sets out the estimated impact of a change in each
of the parameters on Nyrstar's 2018 underlying EBITDA based on the
actual results and production profile for the year ending 31 December
2018.
Estimated annual 2018 underlying
EBITDA impact, excluding hedge impact
(EURm)
--------------------- ---------- --------------------------------------------
2018 Annual Average Metals
Parameter price/rate Variable Processing Mining Group
--------------------- ---------- -------------- ------------ --------------
Zinc price $2,907/t -/+ 10% (35)/+35 (29)/+29 (64)/+64
Lead price $2,242/t -/+ 10% (1)/+1 - (1)/+1
Copper
price $6,523/t -/+ 10% (2)/+2 (1)/+1 (3)+3
Silver
Price $15.71/oz -/+ 10% (3)/+3 - (4)+4
Gold Price $1,268/oz -/+ 10% (1)/+1 - (1)+1
EUR:USD 1.18 -/+ 10% +95/(78) +11/(9) +106/(86)
EUR:AUD 1.58 -/+ 10% (34)/+28 - (34)/+28
EUR:CHF 1.15 -/+ 10% - - (3)/+2
Zinc B/M
TC $147/dmt -/+ 10% (20)/+20 +3/(3) (17)/+17
Lead TC $83/dmt -/+ 10% (2)/+2 - (2)/+2
The above sensitivities were calculated by modelling Nyrstar's 2018
underlying operating performance. Each parameter is based on an average
value observed during that period and is varied in isolation to
determine the full-year underlying EBITDA impact.
Sensitivities are:
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