After years of financial struggles, Nyrstar shareholders are allegedly pointing the blame at major stakeholder Trafigura Group.
After years of financial struggles, Nyrstar (OTC Pink:NYRSY,EBR:NYR) shareholders are allegedly pointing the blame at major stakeholder Trafigura Group.
Nyrstar, one of the world’s largest zinc refiners, has been rattled with financial and operational issues for some time now. In April, the company announced that Trafigura would be taking control of the smelter in an attempt to save it from bankruptcy.
The lockup deal laid out interim funding agreements, which would restructure the company’s balance sheet and make Trafigura the majority owner.
However, a handful of Nyrstar’s non-Trafigura shareholders have reportedly launched a lawsuit against the company, claiming Trafigura used its influence to negotiate lopsided contracts. The lawsuit alleges that these deals have caused Nyrstar to lose significant funds since 2016, contributing to its current dire financial state.
While a spokeswoman from Trafigura declined to comment on the matter, a lawyer representing Nyrstar downplayed the accusations.
“Nyrstar has defended itself in open court against the unsubstantiated allegations made by a small group of shareholders,” Benoit Allemeersch told Bloomberg. “These claims are nothing new and entirely incorrect.”
Despite Nyrstar’s lawyer shrugging off the claims, documents involved in the case — including contracts between Nyrstar and Trafigura — tell a different story.
According to Laurent Arnauts, the lawyer representing approximately 100 Nyrstar shareholders, “(These contracts) confirmed our main suspicion, which was that Trafigura was in a position to exploit or make an abuse of its economic control.”
The shareholders launching the lawsuit claim that Trafigura used its influence on Nyrstar senior executives to enter unfavorable commercial agreements. These included heavy commercial discounts given to Trafigura, the second-largest metals and oil trader.
An analysis by Kris Vansanten, a shareholder and founder of Quanteus Group, claimed that a concentrate supply deal between the companies saw Nyrstar accept processing fees much below standard industry rates.
Quanteus’ analysis painted a stark picture, stating that 2018 industry benchmarks laid out smelter treatment charges of US$147 per tonne of processed ore. However, the rate in Trafigura’s contract with Nyrstar was only US$24 per tonne.
Other components of contracts between the two companies also showed favoritism towards Trafigura, such as clauses that allowed the company to withhold large amounts of metal from Nyrstar.
For the time being, Arnauts said that the Nyrstar shareholder group won a court decision to postpone a vote on the company’s accounts. Going forward, they are planning to pursue damages; however, Allemeersch said the Belgian court dismissed other claims from the group.
“If further claims are filed, we’ll fully and forcefully defend them in court,” Allemeersch said.
As of August 29, Nyrstar shares rested at US$0.10.
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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.