Nyrstar reaches in-principle agreement to transform Port Pirie smelter into an advanced poly-metallic processing and recovery facility, providing an opportunity to strengthen and further diversify group earnings
HIGHLIGHTS
Fundamentally different business model for Port Pirie that is expected to deliver a commercially viable long-term future for the Port Pirie operation
Leveraging a unique opportunity using state of the art and proven technology that is expected to meet stringent environmental standards
Funding and support package agreed in principle with the Australian Federal Government and South Australian Government
Preserves capacity to continue execution of mining integration strategy
Final investment case expected to be completed by end 2013 and commissioning in early 2016
Nyrstar today announced that it has reached an in-principle agreement with the Australian Federal Government and the South Australian Government with respect to the funding of a transformation of the Port Pirie smelter (the "Transformation"). The Transformation, subject to the completion of a final investment case including detailed engineering studies and final project documentation, would include investment in new technology to upgrade the facility to an advanced poly-metallic processing and recovery facility, delivering returns that are expected to meet or exceed Nyrstar's stated investment criteria for mining acquisitions and comparable to margins generated in the advanced materials processing sector.
Fundamentally different business model for Port Pirie
- Transforming the operation from a primary lead smelter into an advanced poly-metallic processing and recovery centre capable of processing a wider range of high margin metal bearing feed materials (including internal residues from Nyrstar's global network of zinc smelters and other complex waste streams containing precious and other non-ferrous metals).
- Accordingly, gross profit is expected to materially improve as the contribution from free metal and by-products increases, whilst the dependence on treatment charges reduces. Combined with a meaningful reduction in operating costs per tonne, the operation's returns are expected to improve significantly.
- Generating financial returns and operating margins that are expected to meet or exceed Nyrstar's stated investment criteria for mining acquisitions, comparable to returns generated in the advanced materials processing sector.
- Representing another step in pursuing Nyrstar's stated mission to capture the maximum value inherent in mineral resources and other feed materials through deep market insight and unique processing capabilities, providing a step-change opportunity to further diversify earnings and potentially create a new business segment integrated with Nyrstar's existing business.
- Independent of the Transformation, Nyrstar will also investigate the technological and financial feasibility of a series of small incremental investments to capture additional metal streams by installing additional metallurgical circuits. These potential investments will be driven by specific market opportunities and will be assessed on a case-by-case basis.
A funding and support package that preserves capacity to continue execution of mining integration strategy
- Capital investment estimated at AUD 350 million[1] (approximately EUR 280 million) to be financed by:
- AUD 150 million via a structured investment to third party investors, benefiting from a guarantee from the Australian Export Finance and Insurance Corporation (the export credit agency of the Australian Federal Government);
- AUD 100 million via a forward sale arrangement of some of the incremental free metal units to be produced at Port Pirie as a consequence of the Transformation, representing a delivery obligation on Nyrstar's balance sheet; and
- AUD 100 million investment from Nyrstar.
- Incremental indebtedness on Nyrstar's balance sheet limited to approximately AUD 100 million (approximately EUR 80 million) preserving capacity to continue the parallel execution of its mining integration strategy.
- The package includes major development status in South Australia facilitating an efficient development approval process and regulatory certainty from the South Australian Government with respect to key operating parameters.
Leveraging a unique opportunity using state of the art and proven technology
- Leveraging a unique opportunity due to:
- Port Pirie's existing industrial footprint and infrastructure; and
- The flexibility of the transformed operation to process all internally generated residues, meaning a significant portion of the metal bearing feed material requirements will be controlled by Nyrstar.
- Technology currently in operation at over 25 sites.
- Converts the existing aged facility utilising state of the art and proven processing technology, and will involve the replacement of the out-dated sinter plant with an oxygen enriched bath smelting furnace, coupled to an electricity cogeneration facility and a new sulphuric acid plant.
- Expected to deliver a significantly improved environmental footprint through a reduced airborne metal and dust emissions profile.
- Delivering a commercially viable long-term future for the Port Pirie operation and the local community.
Final investment case expected to be completed by end 2013 and commissioning in early 2016
- Final investment case including detailed engineering studies is expected to be completed by the end of 2013, the costs of which are expected to be approximately AUD 15 million, to which the South Australian Government will contribute AUD 5 million.
- Capital expenditure to be incurred over a number of years with the significant portion not expected to be incurred before 2014/2015 with commissioning expected in early 2016.
- Limited disruption to existing operations during transformation.
Commenting on the Transformation, Roland Junck, Nyrstar's Chief Executive Officer said,
"The transformation of the Port Pirie smelter, with the support of the Australian Federal and South Australian State Governments, is consistent with our stated mission to capture the maximum value inherent in feed materials and is a further example of our ability to unlock untapped value from within our existing portfolio of assets. The transformation is a unique and very compelling investment which allows Nyrstar to extract increased value from high margin metal bearing feed materials whilst also significantly reducing emissions, providing a long term sustainable future for the Port Pirie operation and local community.
Through the funding and support package agreed with the Australian Federal and South Australian State Governments, we have ensured that an investment in the transformation will not limit Nyrstar's ability to continue to pursue its mining integration ambitions in parallel. The new business model presents an exciting opportunity for Nyrstar to strengthen and further diversify earnings, providing the opportunity to create a new, highly profitable business segment that is expected to generate returns that meet or exceed our stated investment criteria for mining acquisitions and margins comparable to those in the advanced materials processing sector.
The progression of the first phase of the transformation into execution is dependent on the successful completion of the final investment case including detailed engineering studies, which is expected to be completed by the end of 2013. Assuming that the transformation is executed as expected, the construction and commissioning of the new plant will occur simultaneously with existing operations, with the Port Pirie site continuing to operate during the construction of the new facility."
