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Nyrstar to cut costs following $127.3M loss

Keywords: Tags  Nyrstar, Greg McMillan, zinc treatment charges, cost-cutting, zinc production, lead production, Citigroup, Macquarie Group Mark Burton

LONDON — Nyrstar NV will focus on cutting costs after posting a €95-million ($127.3-million) net loss last year, in contrast to net income of €36 million in 2011, on the back of weaker metal prices and treatment charges (TCs), the company said Feb. 7. Revenue fell 8.3 percent to €3.07 billion ($4.11 billion) from €3.35 billion in the same comparison.

Group underlying earnings before interest, taxes, depreciation and amortization (Ebitda) fell to €220 million ($294.8 million) in 2012, down 17 percent from €265 million the previous year. Contributions from the smelting business fell 42.6 percent to €135 million ($180.9 million) from €235 million following a 15-percent decline in TCs and an 11-percent drop in zinc prices. Profitability also was hurt as silver-bearing materials at Port Pirie, Australia, made a lower contribution to earnings, Nyrstar said.

Nyrstar’s zinc metal production totaled 1.08 million tonnes last year, down 3.6 percent from 1.13 million tonnes the previous year, while lead metal production fell 19 percent to 158,000 tonnes from 195,000 tonnes. Zinc concentrates output jumped 50.7 percent to 312,000 tonnes contained from 207,000 tonnes as the company completed the ramp-up of its Langlois Mine in Quebec and saw output at its Tennessee mines rise significantly.

The Balen, Belgium-based company’s shares traded higher in Brussels, despite the net loss, as the company revised its 2013 capital expenditure guidance downward to between €200 million and €230 million ($268 million to $308 million). It also signaled that it would realize €50 million ($67 million) in annualized savings from its cost-cutting program by the end of next year.

Nyrstar, which laid off about 1,000 contractors and staff at its Peruvian mining operations in the fourth quarter, said it plans to cut its overall head count by 15 to 20 percent across its mining, smelting and corporate divisions.

Analysts expect Nyrstar’s fortunes to improve this year as TCs move back in favor of zinc smelters.

"We believe that 2013 zinc TCs should result in a favorable outcome for Nyrstar due to high concentrate inventory coupled with (a) surplus concentrate market and (rest-of-world) smelters operating at high utilization rates (of approximately) 95 percent," analysts with New York-based Citigroup Inc. said.

Benchmark zinc TCs fell to $191 per dry metric ton (dmt) in 2012, down 16.6 percent from $229 the previous year, but spot terms increased significantly throughout the year as a large overhang of concentrates emerged in the market.

Nyrstar chief operating officer Greg McMillan told AMM sister publication Metal Bulletin in October that zinc concentrates held in ports in China, South America, Australia and Europe totaled at least 500,000 dmt. Spot zinc TCs were reported at $110 per dmt at the time, and Citigroup Inc. analysts said this week that terms had rallied to $145 per dmt in January.

Benchmark TCs traditionally are settled at the International Zinc Association’s annual conference, which this year takes place in Cancun, Mexico, from Feb. 24 to Feb. 27.

Market sources said that miners and smelters are negotiating a settlement between $200 and $220 per dmt, but talks are unlikely to be concluded before the zinc conference.

Macquarie Group Ltd. forecast a settlement between $210 and $215 per dmt, which would translate to an increase of $35 to $45 per tonne of metal produced at a base price of $2,000 per tonne, while Citigroup analysts forecast a settlement of $225 per dmt.

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