Iceberg Research

What really killed Nyrstar NV? Shareholders have a strong case against Nyrstar’s board and Trafigura

October 8, 2019

Nyrstar’s shareholders are suing Nyrstar and ultimately plan to seek hundreds of millions of damages from Trafigura. They believe Trafigura used its influence on Nyrstar to sign extremely onerous contracts that led to Nyrstar’s bankruptcy and crushed minority shareholders. Trafigura now owns 98% of the restructured Nyrstar while the other shareholders have been virtually wiped out.

The Belgium regulator (FSMA) also took the unusual step of warning the shareholders that they did not have sufficient information to be able to approve the annual financial statements at the 25 June 2019 general meeting. Nyrstar is already under investigation by FSMA for potential manipulation of its balance sheet.

The auditor, Deloitte, has just issued a qualified opinion on the 2018 Nyrstar accounts that can only reinforce these concerns. 

“We have been unable to obtain sufficient appropriate audit evidence as to the completeness of the information received with respect to the related party transactions and disclosures for the relationship with Trafigura Group Pte, Ltd. and its affiliated entities (collectively “Trafigura”) as included in note 39 to the consolidated financial statements as well as of the completeness of information on the sequence of events initiated in October 2018 that have resulted in the review of the capital structure of the Group.”

Although Nysrtar went through a painful restructuring, this company still withholds key documents on the relationship with Trafigura and on the sequence that led to the restructuring from its auditor. Deloitte is not particularly known for standing up to companies management. The FSMA investigation and the lawsuit against Nyrstar have certainly put pressure on the auditor. 

There are plenty of elements that suggest that Nyrstar’s board has voluntarily failed to preserve the interests of Nyrstar’s shareholders, except for one: Trafigura.

The revised annual report confirmed the zinc concentrate contract between Trafigura and Nyrstar was not at arm’s length

If there were an equivalent of hara-kiri in the corporate world, it would be the 500k tonnes zinc concentrate contract that Nyrstar and Trafigura signed in November 2015. The contract accounted for 25-30% of Nyrstar’s zinc concentrate requirements. The benefits that Trafigura obtained go far beyond what normally companies that finance weaker counterparties negotiate (e.g. discounts obtained in long term offtake contracts).

We had access to this contract but a detailed analysis of the terms is not even necessary because the smoking gun can be found in the revised annual report published a few days ago. Nyrstar revealed that the weighted average treatment charges (“TC”) agreed for 2018 under the zinc purchase agreements with Trafigura was only $37 per metric tonne. This is 75% below the industry benchmark of $147 and most importantly 64% below Nyrstar’s average zinc treatment charges of $103 in 2018

The wide gap confirms suspicions that Nyrstar was looted to the benefit of one single supplier and shareholder, Trafigura. This also raises the question why the very negative fair value of this contract did not show on the balance sheet.

The reasons given by Nyrstar’s management to explain the liquidity crisis in 2018 are refuted by Nyrstar’s own disclosures

Why did Nyrstar go bankrupt? To explain its financial distress, Nyrstar blamed two problems: low zinc price and treatment charges. During the 25 June 2019 shareholder meeting, Nyrstar explained

“In 2018, Nyrstar faced extremely challenging market conditions, with zinc prices significantly below the prior year levels and smelting margins at historically low levels driven by a multi-year decline in treatment charges.” 

Chairman Martyn Konig added: “It was a huge surprise. You are correct. It absolutely was a big surprise the way that the market moved in terms of the zinc price and we cannot hedge the TCs. There were a number of factors that came together. This completely took us by surprise.“

If Mr Konig read Nyrstar’s annual report, he would be even more surprised. 

First, the average zinc price was higher in 2018 than in 2017 ($2,922 up from $2,896). Prices were also higher in the first half of the year. 

Second, as any normal smelter is expected to do, Nyrstar largely hedged its exposure to commodities prices. For example, for “work-in-progress or finished goods inventory, that has been ‘priced-in’ but not ‘priced-out’”, the company “has always consistently monitored its Metal at Risk on an ongoing basis and undertaken hedging to mitigate the metal price exposure”. Also, 70% of total “free metal” produced at the zinc smelters and North American mines was hedged in H1 2018 and 50% in H2.

With regard to the treatment charges, it is correct that spot TCs were very low in the first half of 2018. But no smelter would rely solely on spot TCs. Smelters are capital intensive industrial firms that need visibility on price. They prefer to avoid the very volatile spot market as much as possible. This is what Nyrstar explains in the annual report: 

“Treatment charge (TC) risk: Nyrstar’s results remain correlated to the levels of TCs that it charges zinc miners to refine their zinc concentrates and lead miners to refine their lead concentrates. TCs are cyclical in nature. Mitigation of the risk: TCs are negotiated on an annual basis.” 

The spot market is a very small part of the zinc smelting business. In a 2017 presentation on its business model, Nystar stated: “A spot treatment charge market exists; however, this is relatively illiquid (constituting approximately 10% of all concentrates).” 

So why does the chairman blame spot TCs if TCs are negotiated on an annual basis most of the time by the industry and by Nyrstar? 

The problem was not the spot TCs but the outrageous TC prices that Nyrstar granted to Trafigura.

It is worth noting that Martyn Koning who presided over Nyrstar’s board as chairman when the company collapsed has not been replaced as one would have expected. He was promoted executive chairman. 

Did Nyrstar’s board tank the company? 

Nyrstar alleged that Trafigura was the only possible saviour. From the 25 June 2019 shareholders meeting presentation

“Funding from third parties or stakeholders who were not already familiar with the business was not possible, given:
– The urgency of the funding requirement
– Size of the funding requirement
– Structural restrictions that the existing debt facilities imposed on the potential terms of the new funding and impracticality of obtaining any formal waivers from the existing creditors given the short timeframe”

This implies that only Trafigura was familiar with the business of Nyrstar. Everybody in the zinc industry knows Nyrstar and what the economics of a smelter are. Nyrstar, a listed company, issues publicly available financials. Not exactly a secretive business. Commodity traders or competitors could act quickly to buy cheap assets. These companies have substantial means. 

But Nyrstar’s board decided that it was not even worth trying to sell assets, and threw in the towel without much resistance:

“Moreover, the Board and its advisers considered that initiating an M&A process with no reasonable expectation of success could result in more harm to the Group, given its liquidity constraints. In light of these considerations, the Board concluded that an M&A / asset sale would not be a feasible means of addressing the Company’s capital structure problems.”

A major red flag is the alleged “impracticability of obtaining any formal waivers”. Any specialist who has been involved in similar cases of distressed companies knows that obtaining these waivers is a formality and can be done in a few days when the request is reasonable. Creditors want to avoid an acute liquidity crisis and prefer to give the company more time and options such as raising additional debt, sell assets, discuss with potential investors… Renegotiation of contracts is also frequent in this industry. Of course, any investor would have demanded an overhaul of the board and its management to reduce the influence of Trafigura. Strong doubts about the independence of the Nyrstar board have been reportedThis pre-requirement was probably what really stopped the board from accepting new investors or lenders.

The timing is extremely interesting. Nyrstar folded after treatment charges sharply rebounded in July. Nyrstar declared on September 20th 2018: “Spot zinc treatment charges, driven by the zinc concentrate market becoming better supplied, have increased notably in China over the past two quarters.” The industry had already bottomed out. Smelters were once again attractive assets for competitors and traders. Creditors who know the ups and downs of the commodity cycle are typically very patient in this kind of situation. 

Nothing in the events that led to the restructuring sounds right in comparison with similar cases of distressed companies. 

We note that Nyrstar has been victim of a cyber-attack in January 2019. It would be interesting to know what documents and emails disappeared at that time, and why these data were not backed up.

Trafigura may be on the hook for hundreds of millions

We believe that the minority shareholders have a strong case against Nyrstar’s management and Trafigura when they seek damages. These shareholders estimate that Nyrstar has lost hundreds of millions because of onerous contracts with Trafigura. 

After we published our first report on Trafigura, we have been contacted by various persons who have described similar events in companies where Trafigura is invested. 

It is likely that the FSMA, already involved, will probe whether the board really represented the interests of all shareholders or de facto worked for only one of them, and whether the Nyrstar directors and Trafigura were engaged in a conspiracy. There is a long list of abnormal events or statements. Nyrstar is a well known industrial group in Belgium and its downfall has been closely followed by the press. We expect this scandal to widen. What happened may also complicate Trafigura’s relationship with the banks that have lost money in very suspicious circumstances in the downfall of Nyrstar.



  1. Interesting situation. I haven’t been following the story but didn’t the Company just complete their scheme of arrangement with pretty litigious and aggressive hedge funds holding bonds? If there were a viable legal pathway to assert claims against trafigura (or the board of directors, or the auditor) for damages caused by violating a covenant of the indenture or credit agreement (e.g. breaking a covenant wrt arms-length transactions) wouldn’t they have litigated? Also now that the scheme has been executed, who would they be litigating against? Sorry — just not knowledgeable.

    1. Most hedge funds bought after the bonds fell. No reason to litigate for them. For your second question, please refer to the announcements by the minority shareholders in the press.

  2. The Trafigura’s Nystar trap falls into the category “you cant do a good deal with a bad person”. Commodities can attract primary fortune hunters with secondary morals”.

  3. Martyn Konig – independent chairman?
    “Chief Investment Officer for T Wealth Management SA, the private family office for partners and senior management of the Trafigura Group”.
    Also moved from Non-Executive to Executive Chairman at Euromax Resources when Trafigura provided financing to take control of the company.

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