On October 1, Nyrstar, the world’s biggest zinc producer, signed a strategic offtake and marketing agreement that will see Noble Group sell a portion of its European zinc production.
One reason Nyrstar was in the press was that it was looking for at least one partner to take over a marketing agreement to sell 350,000 metric tons (MT) of its European zinc, valued at $650 million per year. Commodities giant Glencore International — now Glencore Xstrata (LSE:GLEN) — signed the deal in 2008, but agreed to give it up in order to get the European Union’s approval for its takeover of Xstrata.
This past week, Nyrstar was again in the news after entering a strategic offtake and marketing agreement for a portion of the material with Noble Group (SGX:N21), a global supply chain manager of agricultural and energy products, as well as metals and minerals.
Under the agreement, which will run from 2014 to 2018, Nyrstar will reserve 200,000 MT per year of “commodity grade and continuous galvanising grade zinc for Noble,” according to Reuters. Nyrstar will receive the market price as well as a benchmark premium per MT, “with a profit-sharing mechanism for any upside,” the news outlet also notes. As well, the deal will see Noble pay 6.4 million euros (US$8.7 million) for a 1-percent stake in Nyrstar.
In its press release regarding the agreement, Nyrstar describes the deal as “a major step in delivering a new global commercial strategy which started with the establishment of a new Marketing, Sourcing and Sales segment earlier in 2013.” The company also notes that the move is part of a European zinc metal plan that it believes will “deliver improved margins.”
Noble’s global head of metals, Mark Hansen, commented, “Noble Group is pleased to enter into this mutually beneficial multi-year offtake and marketing relationship which we believe will form the basis for new opportunities for Noble to bring its leading logistics and supply services to zinc metal consumers with the reliable market leading Nyrstar production. We are pleased to work with a market leader like Nyrstar and look forward to a successful long term partnership.”
As mentioned, the Glencore agreement covered 350,000 MT of zinc, meaning that Nyrstar still has 150,000 MT to assign. The company is continuing “to discuss direct sales, marketing and financing opportunities with a number of market participants” interested in the remaining material, according to its press release.
Glencore Xstrata will continue to sell the commodity grade zinc and lead produced from Nyrstar’s smelters outside the European Union.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.