Regulated Information

2 August 2017 at 07:00 CEST

HIGHLIGHTS:

• Group underlying EBITDA^[1] of EUR 111 million for H1 2017, an increase of EUR 21 million on H1 2016, primarily due to a 50% increase in the average zinc price (USD 1,799/t to USD 2,690/t) and strengthening of the USD, partially offset by lower treatment charge terms and reduced production at Port Pirie
  • Metals Processing underlying EBITDA of EUR 117 million, up EUR 13 million year-on-year, driven primarily by higher commodity prices, partially offset by lower zinc treatment charges and reduced lead and by-product production; and
  • Substantially improved Mining underlying EBITDA of EUR 15 million, up EUR 14 million year-on-year, driven by higher commodity prices and lower treatment charges partially offset by negative EBITDA contribution from the restart of the Middle Tennessee Mines
• Reinforced balance sheet
  • Net debt excluding zinc metal prepay and perpetual securities of EUR 986 million at the end of H1 2017, no change from 31 March 2017, predominantly due to USD 100 million of new silver prepays completed in Q2 2017 to roll forward prepays which are amortising in 2017. Net debt inclusive of zinc metal prepay and perpetual securities of EUR 1.243 billion at the end of H1 2017, a reduction of EUR 29 million on 31 March 2017
  • Successful placement of leverage neutral EUR 400m notes due 2024 in March 2017 and EUR 100m upsize of SCTF facility in April 2017 to enhance credit, extend maturities and improve liquidity
  • Further protective hedges placed for zinc price and foreign exchange to reduce downside risk
• Port Pirie Redevelopment remains on schedule for hot commissioning to commence by the end of September 2017 with first feed of the new TSL furnace commencing in October 2017 and total project cost of approximately AUD 660 million
• Middle Tennessee Mines restart and ramp-up ahead of schedule with zinc in concentrate production of 5kt in H1 2017; restart of Myra Falls approved by the board; and Latin American mining assets sold
• Safety improvements across the group with the following milestones met - one million working hours recordable injury free at Auby, one million working hours lost time injury free at Port Pirie and no lost time injuries at the Middle Tennessee Mines restart
• Strategic priorities remain to deliver the Port Pirie Redevelopment, optimise North American mining operations including the restart of Myra Falls and zinc smelting optimisation review

Commenting on the first half 2017 results, Hilmar Rode, Chief Executive Officer said:

"This was a solid half of production results for the zinc smelting and mining operations. Zinc metal production was a slight beat against the same period last year, even though production in Q2 2017 was impacted by a series of planned maintenance shuts at Balen, Budel and Hobart. Production of lead and by-products during H1 2017 was negatively impacted by unplanned outages at Port Pirie in Q1 2017 with issues at the old acid plant and blast furnace. These issues have now largely been resolved.

We have continued to progress our strategic initiatives in H1 2017, completing a review of our North American mining operations to identify their full potential and optimising the Port Pirie Redevelopment to accelerate and de-risk the project. We are pleased that the Port Pirie Redevelopment remains on track for hot commissioning by the end of September 2017. The review of our zinc smelting network to identify operating performance improvements is underway and we expect to have this largely completed in the current quarter.

The financial performance of the Company has been supported by the strong zinc market fundamentals which have provided zinc prices that are 50% higher than the same period last year. However, the Company still faces a number of headwinds in the form of a lower zinc benchmark treatment charge and the current weakening of the US dollar against the Euro. In this light, it is extremely important that we continue to progress against our clear set of strategic priorities to further strengthen and transform the business.

In H1 2017, our balance sheet has been substantially reinforced by the issuance of EUR 400 million of senior unsecured notes with a 7 year tenor in March 2017; the EUR 100 million upsize of the SCTF facility in April 2017 to EUR 500 million; and rolling our silver prepays with two additional silver prepay transactions completed in Q2 2017. These initiatives have significantly improved our liquidity to EUR 718 million and extended our average bond maturity to 4.25 years. During H1 2017, protective zinc price hedges have been put in place for 70% of Nyrstar's total free metal production through to the end of H1 2018 as well as protective foreign exchange hedges on CAD/USD and AUD/USD transactional exposure. We will continue to monitor the market for additional opportunistic financings and will apply strategic hedges to limit downside risks for key commodity price and foreign exchange sensitivities on a rolling six to nine month basis during the implementation of the Company's transformation and turnaround plan.

The strategic priorities for the second half of the year and into 2018 will be to deliver the Port Pirie Redevelopment and start the ramp up to design capacity; complete the full potential review of our zinc smelting network; and begin to deliver a substantial earnings uplift from the North American mining operations with the optimisation of the Tennessee and Langlois operations and the restart of the Myra Falls mine."

CONFERENCE CALL

Management will discuss this statement in a conference call with the investment community on 2 August 2017 at 9:00am Central European Summer Time. The presentation will be webcast live and will also be available in archive. The webcast can be accessed via http://edge.media-server.com/m/p/vvqd85os.

KEY FIGURES

GROUP FINANCIAL OVERVIEW

Revenue for H1 2017 of EUR 1,806 million was up 37% on H1 2016, driven by higher zinc, lead, silver and gold prices which were up 50%, 28%, 9% and 1% respectively, benefit of stronger US dollar against Euro in H1 2017  versus H1 2016 and increased production volumes in zinc smelting and mining.

Group gross profit for H1 2017 of EUR 555 million was up 18% on H1 2016, driven by higher production volumes in both Metals Processing and Mining and higher zinc, lead, silver and gold prices and stronger US dollar, partially offset by deteriorating benchmark zinc treatment charge terms.

Direct operating costs for H1 2017 of EUR 445 million increased 16% on H1 2016, due to higher production volumes in both Metals Processing and Mining and higher mining costs as a result of the restart of mining operations at Middle Tennessee.

Group underlying EBITDA (continuing operations) of EUR 111 million in H1 2017, an increase of 23% on H1 2016, due to higher commodity prices and stronger US dollar, partially offset by lower treatment charges and lower production from Port Pirie.

Depreciation, depletion and amortisation expense for H1 2017 of EUR 77 million was down 11% year-on year, largely driven by the mining impairment charges taken in 2016.

Net finance expense including foreign exchange for H1 2017 of EUR 65 million was up EUR 12 million on H1 2016 primarily due to net debt exclusive of zinc prepay and perpetual securities increasing by 14% and net debt inclusive of zinc prepay and perpetual securities increasing by 7% compared to end December 2016. During H1 2017, perpetual securities were drawn by only EUR 7 million as Nyrstar needed to fund the capital expenditure overrun at Port Pirie, communicated in February 2017, before drawing further perpetual securities. At the end of H1 2017, an aggregate total net of debt issue costs of EUR 139 million (AUD 219 million) of perpetual securities had been drawn for the Port Pirie Redevelopment funding.

Income tax benefit (including discontinued operations) for H1 2017 of EUR 9 million (H1 2016: income tax expense of EUR 23 million from continuing operations and EUR 6 million from discontinued operations) due to recognition of losses, representing an effective tax rate of 29.4% (H1 2016: (13.9%)). The effective tax rate for H1 2017 was impacted by losses incurred by Nyrstar, including the discontinued operations, for which no tax benefit has been recognised.

Loss from continuing operations in H1 2017 of EUR 56 million, compared to a net loss of EUR 142 million in H1 2016, mainly as a result of the impairment charges related to Mining assets in H1 2016.

Capital expenditure (continuing operations) was EUR 161 million in H1 2017, representing an increase of 29% year-on-year driven by a EUR 22 million increase in Metals Processing due to the large planned maintenance shuts in Q2 2017 at Budel, Balen and Hobart and EUR 13 million capex increase in Mining with the restart of the Middle Tennessee mines, compared to H1 2016 at EUR 125 million.

Cash flow from operating activities before working capital changes of EUR 89 million in H1 2017 was up 65% compared to EUR 54 million in H1 2016 and cash in-flow from changes in working capital and other balance sheet movements in H1 2017 of EUR 19 million was up 128% compared to an out-flow of EUR 69 million in H1 2016, resulting in total cash in-flow from operating activities for H1 2017 of EUR 108 million compared to EUR 15 million outflow for H1 2016. The increase in net working capital levels was driven primarily by an increase in inventory valuation due to higher commodity prices, including the effect on inventory balance from zinc price increases of approximately EUR 46 million for H1 2017.

Net debt at the end of H1 2017, excluding the zinc metal prepay and perpetual securities, was 14% higher compared to the end of 2016 at EUR 986 million (EUR 865 million at the end of 2016). The net debt inclusive of the zinc metal prepay and perpetual securities at the end of H1 2017 was EUR 1,243 million, up 7% compared to the end of 2016. Cash balance at the end of H1 2017 was EUR 95 million compared to EUR 127 million at the end of 2016 with proforma liquidity at the end of H1 2017 of EUR 718 million which includes the upsize of the Structured Commodity Trade Finance Facility completed at the end of April 2017.  

ZINC CONCENTRATES

Zinc concentrate 2017 benchmark treatment charges were settled at the end of Q1 2017 on the following terms:

-     Base TC USD 172 per dmt (dry metric tonne) of concentrate at basis price of USD 2,800 per tonne;

-     Escalator of 0% from zinc price above USD 2,800 per tonne; and

-     De-escalator of 0% from zinc price below USD 2,800 per tonne.

Nyrstar concluded its negotiations with all benchmark and non-benchmark suppliers by April 2017. The 2017 benchmark zinc concentrate treatment charge represents a base TC decrease of approximately 15% on the 2016 headline treatment charge of USD 203 per dmt, basis price USD 2,000 per tonne.

The vast majority (90-95%) of Nyrstar's concentrate requirements for 2017 are priced at benchmark terms or by reference to the benchmark with a discount applied. The average discount to the benchmark realized by Nyrstar in H1 2017 has been slightly larger than in H1 2016 and the past several years. In H1 2017, the average discount to the realized zinc treatment charge achieved by Nyrstar's Metals Processing operations was approximately USD 40-50 per tonne and was in-line with the discount realized in Q2 to Q4 2016. The same discount is expected to be realized over the course of H2 2017.

SAFETY, HEALTH AND ENVIRONMENT

"Prevent Harm" is a core priority of Nyrstar. The Company is committed to maintaining safe operations and to proactively managing risks including with respect to people and the environment. At Nyrstar, we work together to create a workplace where all risks are effectively identified and controlled and everyone goes home safe and healthy each day of their working life.

The lost time injury rate (LTIR) for the Company in H1 2017 was 1.8, similar to the rate of 1.7 in H1 2016. The frequency rate of cases with time lost or under restricted duties (DART) and the frequency rate of cases requiring at least a medical treatment (RIR) declined by 11% and 3% compared to H1 2016.

Nyrstar achieved a number of significant safety milestones in H1 of 2017. These milestones included the Auby smelter reaching one million working hours recordable injury free (the first time at Nyrstar that an operational site achieved such a milestone); the Port Pirie Redevelopment project completed one million working hours lost time injury free; and the Middle Tennessee Mines were restarted with no lost time injuries.

No environmental events with material business consequences or long-term environmental impacts occurred during H1 2017.

OPERATIONS REVIEW: METALS PROCESSING

Metals Processing delivered an underlying EBITDA result of EUR 117 million in H1 2017, an increase of 13% over H1 2016 due to higher commodity prices and a stronger USD, partially offset by lower zinc treatment charges, higher energy prices and reduced lead and by-product production.

Gross profit year-over-year was up 12% at EUR 456 million in H1 2017 and was mainly driven by higher commodity prices with zinc, lead and silver up 50%, 28% and 9% respectively and higher zinc metal production (up 2%) which was partially offset by a 15% decrease in the annual zinc benchmark treatment charges.

Direct operating costs year-over-year were up 12% at EUR 339 million, predominantly due to higher energy costs which increased by 31% compared to H1 2016. Energy costs at Port Pirie increased period-over-period by approximately EUR 14 million due to higher coking coal prices and by approximately EUR 17 million across the zinc smelters due to higher electricity prices. 

Sustaining capital spend in H1 2017 increased by 19% on H1 2016, in-line with the higher sustaining capital expenditure guidance provided for 2017 (EUR 100 million to EUR 135 million) compared to 2016 (EUR 97 million).

Direct operating costs per tonne increased by 12% in H1 2017 compared to H1 2016 due to increased energy prices which were partially offset by ongoing efficiency improvements across Metals Processing. The direct operating costs per tonne at Port Pirie increased by 40% in H1 2017 compared to the same period in 2016 due to increased energy prices, lower production volumes and unplanned maintenance outages.

Metals Processing produced approximately 518,000 tonnes of zinc metal in H1 2017, in-line with full year 2017 guidance, representing a 2% increase on H1 2016. The increase in zinc metal production year-over-year was despite the planned maintenance shuts at Balen and Budel in Q2 2017 which negatively impacted production by approximately 11,000 tonnes and 6,500 tonnes of zinc metal respectively. Hobart also commenced its planned maintenance shut of its roasting and acid departments at the end of June 2017. The Hobart planned maintenance shut was completed by the end of July 2017 with a production impact of approximately 5,500 tonnes of zinc metal which will impact Q3 2017 production volumes.

Zinc metal production at Auby was up 17% as a result of a planned cellhouse shutdown in Q1 2016; Balen was down 6% due to a planned 19 day cellhouse shutdown in May 2017; and Clarksville was up 5% primarily due to a higher proportion of feed being sourced from the East Tennessee mines. Indium production at Auby recommenced during Q1 2017 with production of 9.7 tonnes during H1 2017. The indium production had ceased at Auby since November 2015 due to damage caused by a fire in the indium plant. Indium production is expected to ramp-up to approximately 70 tonnes per annum over the coming year.

Lead market metal production at Port Pirie of 84kt was 12% lower compared to H1 2016 due to a slow blast furnace rate resulting from a heat exchanger failure in the old acid plant and operational issues in the sinter plant that have negatively affected sinter quality. Production was also impacted by a 12 day blast furnace outage to repair leaking water jackets and a damaged fume hood. These issues have now been largely resolved. Copper and silver production was lower in H1 2017 by 17% and 26% respectively whilst gold production was up 11%. The variance in the production of copper, silver and gold is mainly due to a different feed mix consumed with lower copper and silver and higher gold contained.

Sulphuric acid production of 652,000 tonnes in H1 2017 was down by 6% compared to H1 2016. This reduction in sulphuric acid production is primarily due to a 35% reduction in sulphuric acid production at Port Pirie. Reduced acid production at Port Pirie is due to the 12 day blast furnace outage and substantial repairs in January 2017 that have been necessary for the end-of-life acid plant which is due to be replaced with the Port Pirie Redevelopment work.

OPERATIONS REVIEW: MINING

Mining underlying EBITDA of EUR 15 million in H1 2017 was EUR 14 million higher than in H1 2016 due to the higher zinc price, lower zinc treatment charge terms and operational improvements. The Mining result excludes the underlying EBITDA impact of Contonga, El Mochito, El Toqui, Coricancha and Campo Morado, which have been eliminated as discontinued operations due to their announced divestment. Myra Falls being on suspension and the Middle Tennessee Mines which were in the process of restart in H1 2017, contributed EBITDA of negative EUR 6 million and negative EUR 5 million respectively in H1 2017. As at the start of H2 2017, the Middle Tennessee mines are contributing positive EBITDA.

Mining capital expenditure in H1 2017 was EUR 19 million, up EUR 13 million year-on-year, due primarily to the re-start of the Middle Tennessee mines which commenced in December 2016. Mining capex excludes the Contonga, Coricancha, El Toqui, El Mochito and Campo Morado operations which have been eliminated from the results as discontinued mining operations.

Nyrstar's continuing Mining operations produced approximately 53kt of zinc in concentrate in H1 2017, an increase of 6% compared to H1 2016. Production at Langlois was impacted due to a lack of development which is currently being addressed and two unplanned production outages in Q1 2017 to repair a motor hoist and conduct work in the well. The Middle Tennessee mine re-started its mill production ahead of its previously communicated schedule with the mill processing 5kt of zinc in concentrate in the period of May to June 2017. The Middle Tennessee Mines are forecast to achieve full capacity of 50kt per annum of zinc in concentrate by November 2017..

OTHER DEVELOPMENTS

Mining Divestment Process

Over the course of H1 2017, the Company has been progressing the Mine divestment process by completing customary closing conditions relating to the sales of the Contonga mine in Peru and various mineral claims located in Quebec, Canada, the Campo Morado mine in Mexico and the Coricancha mine in Peru. The closing conditions for the sale of the minerals claims located in Quebec and those for Campo Morado were completed in April 2017, Coricancha was completed in July 2017 and Contonga is expected to be satisfied during the course of Q3 2017.

At the end of H1 2017, Nyrstar had sold all five of its mining assets in Latin America with a total cash consideration of USD 72 million (USD 40m upfront and USD 32m in contingent milestone payments). During the course of H1 2017, Nyrstar has completed a full potential review of the North American mining portfolio and is rolling out optimisation plans for all four of the mining assets. The mines, including the Myra Falls mine which is commencing its restart in August 2017, are positioned to ramp-up to 200kt per annum of zinc in concentrate production and deliver continued improvements in operating costs.

Port Pirie Redevelopment

As at 30 June 2017, capex incurred at Port Pirie was AUD 609 million with AUD 627 million committed, AUD 219 million drawn under the perpetual securities and AUD 73 million remaining to be drawn.

As communicated by the Company on 9 February 2017, a comprehensive review of the Port Pirie Redevelopment project has been undertaken and completed to ensure that the scope, flow sheet and commissioning will provide Port Pirie with industry leading performance.

Management's review has confirmed that the Port Pirie Redevelopment is the right strategy for the Company as it will have a significant positive long-term effect on Nyrstar's operations and deliver a substantial earnings uplift. However, the review also identified that rework is required to the fabrication of key module components, which delayed the start of hot commissioning to the end of September 2017 as previously reported.. Also as part of the review, a number of engineering improvements have been identified that will unlock additional value. Port Pirie is at a stage where the identified improvements can still be implemented effectively ahead of the hot commissioning milestone scheduled to commence in September 2017 and the first feed of the TSL furnace in October 2017.

In H1 2017, the Port Pirie Redevelopment has focused on completing the rework referred to above and enhancing the slag tapping arrangements on the TSL furnace whilst completing the modular construction and progressing the commissioning of the new infrastructure and related control systems. In addition, training commenced of Nyrstar personnel at the Kazzinc lead smelting operations in Kazakhstan. The lime plant commissioning and the piling for the relocation of the slag caster was completed during Q2 2017.

Nyrstar reaffirms that the incremental EBITDA uplift from the redevelopment, using 2016 as a basis, will increase from the previous full ramp-up guidance of EUR 80 million per annum and is expected to be in the region of EUR 40 million in 2018, EUR 100 million in 2019 and EUR 130 million per annum from 2020. The expected cost to complete the redevelopment is also reaffirmed as AUD 660 million.

SENSITIVITIES

Nyrstar's results continued to be significantly affected during the course of H1 2017 by changes in metal prices, exchange rates and treatment charges. Sensitivities to variations in these parameters are depicted in the below table, which sets out the estimated impact of a change in each of the parameters on Nyrstar's H1 2017 underlying EBITDA based on the actual results and production profile for the half year ending 30 June 2017.

The above sensitivities were calculated by modelling Nyrstar's H1 2017 underlying operating performance. Each parameter is based on an average value observed during that period and is varied in isolation to determine the full-year underlying EBITDA impact.

Sensitivities are:

• Dependent on production volumes and the economic environment observed during the reference period.
• Not reflective of simultaneously varying more than one parameter; adding them together may not lead to an accurate estimate of financial performance.
• Expressed as linear values within a relevant range. Outside the range listed for each variable, the impact of changes may be significantly different to the results outlined.

These sensitivities should not be applied to Nyrstar's results for any prior periods and may not be representative of the underlying EBITDA sensitivity of any of the variations going forward.

During the implementation of the implementation of the transformation and turnaround strategy, Nyrstar has taken prudent measures to mitigate downside risk on zinc prices and key currencies.

In Q1 2017, Nyrstar had in place zinc price collar hedges to protect 70% of total free metal produced within a price range of USD 2,127 and USD 2,496 with full upside from USD 2,800; and for Q2 2017 to Q4 2017, a collar of USD 2,172 to USD 2,543. At the end of Q2 2017, protective hedges were put in place for 70% of the total free metal produced by Nyrstar's Metals Processing segment (8,300 tonnes of zinc metal per month) and Mining segment (7,500 tonnes per month of the payable zinc metal produced in concentrate) for H1 2018. These hedges result in full exposure to the zinc price for 100% of the production volume in H1 2018 between a floating zinc price of USD 2,300/t and USD 3,094/t. Above and below these prices, Nyrstar's exposure is limited to 30% of the total free metal produced.

Since H1 2016, Nyrstar has entered into a series of foreign exchange options to hedge the Company's monthly exposure related to the direct operating costs denominated in Australian dollars (AUD), Canadian Dollars (CAD) and in Euro (EUR) utilising put and call collar structures. For the EUR/USD transactional exposure, various collars have been executed resulting in a weighted average collar of 1.05 to 1.14 for approximately 100% of the total transactional expenses for H1 2017; and a weighted average collar of 1.00 to 1.10 for approximately 100% of the total transactional expenses for H2 2017. For the AUD/USD transactional exposure, various collars have been executed resulting in a weighted average collar of 0.62 to 0.81 for approximately 100% of the total transactional expenses for H1 2017;  a weighted average collar of 0.68 to 0.81 for approximately 100% of H2 2017; and a weighted average collar of 0.68 to 0.80 for approximately 33% of 2018. For the CAD/USD transactional exposure on Langlois, various collars have been executed resulting in a weighted average collar of 1.28 to 1.35 for approximately 70% of 2017 and a weighted average collar of 1.32 to 1.36 for approximately 100% of 2018.

FORWARD-LOOKING STATEMENTS

This release includes forward-looking statements that reflect Nyrstar's intentions, beliefs or current expectations concerning, among other things: Nyrstar's results of operations, financial condition, liquidity, performance, prospects, growth, strategies and the industry in which Nyrstar operates. These forward-looking statements are subject to risks, uncertainties and assumptions and other factors that could cause Nyrstar's actual results of operations, financial condition, liquidity, performance, prospects or opportunities, as well as those of the markets it serves or intends to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. Nyrstar cautions you that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which Nyrstar operates may differ materially from those made in or suggested by the forward-looking statements contained in this news release. In addition, even if Nyrstar's results of operations, financial condition, liquidity and growth and the development of the industry in which Nyrstar operates are consistent with the forward-looking statements contained in this news release, those results or developments may not be indicative of results or developments in future periods. Nyrstar and each of its directors, officers and employees expressly disclaim any obligation or undertaking to review, update or release any update of or revisions to any forward-looking statements in this report or any change in Nyrstar's expectations or any change in events, conditions or circumstances on which these forward-looking statements are based, except as required by applicable law or regulation.

About Nyrstar

Nyrstar is a global multi-metals business, with a market leading position in zinc and lead, and growing positions in other base and precious metals, which are essential resources that are fuelling the rapid urbanisation and industrialisation of our changing world. Nyrstar has mining, smelting and other operations located in Europe, the Americas and Australia and employs approximately 4,300 people. Nyrstar is incorporated in Belgium and has its corporate office in Switzerland. Nyrstar is listed on Euronext Brussels under the symbol NYR. For further information please visit the Nyrstar website: www.nyrstar.com.

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MINING PRODUCTION ANNEX

^[1] Underlying EBITDA is a non-IFRS measure of earnings, which is used by management to assess the underlying performance of Nyrstar's operations and is reported by Nyrstar to provide additional understanding of the underlying business performance of its operations. Nyrstar defines "Underlying EBITDA" as profit or loss for the period adjusted to exclude loss from discontinued operations (net of income tax), income tax (expense)/benefit, share of loss of equity-accounted investees, gain on the disposal of equity-accounted investees, net finance expense, impairment losses and reversals, restructuring expense, M&A related transaction expenses, depreciation, depletion and amortization, income or expenses arising from embedded derivatives recognised under IAS 39 "Financial Instruments: Recognition and Measurement" and other items arising from events or transactions clearly distinct from the ordinary activities of Nyrstar. For a definition of other terms used in this press release, please see Nyrstar's glossary of key terms available at: http://www.nyrstar.com/investors/en/Pages/investorsmaterials.aspx  

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