NYRSTAR (BUY, TP €13.0): In line FY10 results & €490m rights issue announced

For further information contact analyst: Filip De Pauw, Brussels (32) 2 547 60 97

·       FY10 underlying REBITDA came in in line with expectations at €207m (vs. INGF of €211m and cons. €203m). EBITDA contribution from smelting was better than anticipated (€198m vs ING €173m), while mining (which is the growth driver going forward) was a bit weaker (€24m vs INGF €38m).

·       Underlying EPS was also in line at €0.99 vs ING €1.01.

·       Net debt declined surprisingly to €296m (INGF €408m), due to €107m from accelerated payments terms from the off take agreement with Glencore.

·       Nyrstar proposes a €0.15 distribution to shareholders via a share capital reduction.

·       Outlook is not quantified, as expected.

·       Nyrstar (finally) announced a €490m 7-for-10 rights issue. 70m new shares should be issued at €7.0 per share (meaningful 38.5% crude discount on €11.39 close, but not that surprising in our view due to the of the size rights issue vs market cap). It implies a 70% increase in number of shares to 170m and a 41% dilution of consensus 2011F EPS (from €2.28 to €1.34).

·       We believe the rights issue should provide Nyrstar with the necessary funds to increase upstream integration from 30% to 50%, and we prefer one large rights issue over several smaller ones. In the short term (before reinvestment) the rights issue evidently implies EPS dilution. Hence, we expect some volatility in the share price in the coming days.

·       Investment case: we like Nyrstar for its growth strategy (EBITDA to double by 2012F) via improvement of its existing businesses and upstream integration. Meanwhile, valuation seems attractive pre-rights-issue: 5.0x PER 2011F on consensus f/c vs. 7.5x-9.5x for peers (Korea Zinc, Hindustan Zinc, Boliden, Aurubis).




The Company delivered a strong financial performance in 2010, with Underlying EBITDA more than doubling to €207 million (compared to €93 million in 2009). This consisted of a €24 million and €198 million contribution respectively from the mining and smelting segments, with €(15) million in the other and eliminations segment.



Nyrstar continued to deliver on its growth strategy, focussing selectively on pursuing opportunities in mining, favouring mines that support its existing smelting assets and where it has expertise and proven capability. In 2010, Nyrstar acquired 1.25 million tonnes of zinc in concentrate from Talvivaara (Finland) in February, the remaining 15% of the Coricancha mine (Peru) in July, the Contonga and Pucarrajo mines (Peru) in July and subsequently the Campo Morado operations (Mexico) in January 2011. Nyrstar has now exceeded its target 30% integration level, based on full production of its existing mines (including the Talvivaara streaming agreement and the Campo Morado operation). At full production  Nyrstar's current zinc mining operations would be one of the ten largest in the world based on 2010 production according to Brook Hunt.


Also in 2010, Nyrstar acquired a 10.24% interest in a mining development project in Chile (Herencia Resources plc) and a further 11% stake (now representing a 26.5% stake) in a mining development project in Northern Greenland (Ironbark Zinc Limited).


The Company has a medium term goal of achieving a 50% integration level and continues to actively explore opportunities to deliver on its strategy.


In 2010, Nyrstar achieved record annual zinc metal production of approximately 1.076 million tonnes and is once again the world's largest zinc smelting company based on production according to Brook Hunt. Production in 2010 was 33% higher than in 2009, primarily due to the return of the Balen smelter (Belgium) from care and maintenance and the return of the Budel (the Netherlands) and Clarksville (U.S.) smelters from reduced production levels to full production.


Nyrstar's mining segment, which includes the Talvivaara streaming agreement, produced approximately 84,000 tonnes of zinc in concentrate in 2010, an approximately 47% increase in production in H2 2010 compared to H1 2010. At the end of 2010, the Coricancha, Contonga and East Tennessee Mines were operating at full production capacity. As previously stated, all of Nyrstar's mines (including the Campo Morado operation) and its streaming agreement with Talvivaara are expected to reach full production by the end of 2012.


The zinc price rose 30% to US$2,159/tonne in 2010 reflecting the overall improvement of the world economy and the increased demand for zinc. However, the zinc price was volatile throughout 2010, with a high of US$2,635/tonne in January and a low of US$1,595/tonne in June. The LME lead price followed a similar pattern of volatility to zinc during 2010, with an average price in 2010 of US$2,148/tonne (24% higher than 2009). Gold and silver prices increased throughout 2010, supported by increasingly risk-averse investor sentiment, with gold rising approximately 27% to US$1,410/troy oz and silver rising approximately 73% to US$30.63/troy oz by 31 December 2010. The Company's financial performance also benefited from a 4% depreciation of the Euro against the US dollar, from an annual average of 1.39 in 2009 to an average of 1.33 in 2010, as the Company's earnings are largely denominated in US dollars, whereas a substantial proportion of operating costs are denominated in euros.


Roland Junck, chief executive officer of Nyrstar, said,


"2010 was a year of delivery for Nyrstar.


We achieved an underlying EBITDA of €207 million, more than double that of 2009. Our smelting segment produced record volumes of zinc metal in an environment of higher average metal prices and a weaker euro compared to 2009.


In our mining segment we achieved our 2010 target of 30% integration with the acquisition of the Campo Morado operations and fully ramped up our Contonga, Coricancha and East Tennessee Mines to full production.   


In 2010, we implemented a number of important financing initiatives. These initiatives have provided Nyrstar with a solid base for the continued execution of our strategy.


We continue to actively explore opportunities to deliver on our strategy of expanding into mining, with a target of 50% integration in the medium term providing us with greater exposure to the more profitable part of the zinc value chain.


Whilst the zinc price in 2010 was volatile it was much stronger than in 2009, supported by a strengthening of our primary markets. Similar to 2010, we expect the zinc price to remain volatile in 2011. However, the fundamental medium to long term outlook for the zinc market remains strong and we believe that Nyrstar, as the world's largest zinc metal producer and through its continued upstream integration, is best positioned to leverage off these strong zinc market fundamentals."




Management will present these results to the investment community on 24 February at 08:00 Greenwich Mean Time, 09:00 Central European Time. The presentation will be webcast live on the Nyrstar website, www.nyrstar.com, and will also be available in archive.



About Nyrstar

The partner of choice in essential resources for the development of a changing world.  Nyrstar is a leading global multi-metals business, producing significant quantities of zinc and lead as well as other products (including silver, gold and copper).  Nyrstar is listed on NYSE Euronext Brussels under the symbol NYR. For further information visit the Nyrstar website, www.nyrstar.com.

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