Nyrstar NV broke the rules designed to prevent market abuse

Belgium’s financial regulator (FSMA) has issued its final report on Trafigura's restructuring of zinc producer Nyrstar NV. FSMA found that zinc maker Nyrstar NV broke the rules designed to prevent market abuse in its disclosures about its commercial ties to commodities trader Trafigura Group. FSMA will submit its report to the Sanctioning Committee and the Criminal Court in Antwerp.

Trafigura is an internationally active commodity trading organization engaged in trading petroleum and petroleum products, renewable energy, non-ferrous metals, ores, and concentrates for the industry. Trafigura is positioned as the second-largest independent company in global trading of non-ferrous metals and the third-largest independent company in petroleum trading.

Nyrstar NV was founded in 2007 and was headquartered in Zurich. Nyrstar NV is a listed company known for its zinc smelting and alloying operations.

In 2019, Trafigura absorbed 98% of the operational assets of Nyrstar NV. Trafigura kept the trademark name Nyrstar, which no longer has any significant relationship with the legal entity Nyrstar NV apart from the remaining 2% shareholding beyond the absorbed operational assets.

Nyrstar NV, before the takeover by Trafigura, had over 4,000 employees and was one of the world's largest producers of zinc metal.

In late 2014, Trafigura acquired 15.30% of the shares in Nyrstar NV. At the end of 2015, Trafigura increased its shareholding to 23.73%, achieving a significant position within Nyrstar NV and control of the board of directors.

Trafigura, from 2015 onwards, placed executives in critical positions at Nyrstar NV, who apparently remained loyal to Trafigura. They appear to have violated corporate governance rules, especially those on conflicts of interest. Managers loyal to Trafigura were both in the management and the board of directors of Nyrstar NV.

Trafigura became the majority shareholder of Nyrstar NV and a significant supplier, customer, and financier. Managers who remained loyal to Trafigura systematically entered into agreements unfavourable to Nyrstar NV, while breaching commercial agreements between Nyrstar NV and Trafigura. New arrangements were made between Nyrstar NV and Trafigura (or shell structures linked to Trafigura) on non-market terms between 2015 and 2019.

Another element that damaged Nyrstar NV was the sale or transfer of assets below market price, particularly the prepayment rights to the Talvivaara zinc concentrate in Finland and the sales of the mines in Latin America. The board of Nyrstar NV approved those transactions.

In the fourth quarter of 2018, Trafigura and the Nyrstar NV board of directors allegedly triggered a liquidity crisis at several levels: by blocking financial instruments to reduce liquidity and through a disinformation campaign to unnerve stock market investors and Nyrstar NV creditors. The company could have avoided the liquidity crisis had Trafigura not blocked the credit lines and financially pressured Nyrstar NV regarding prepayments in zinc.

Furthermore, Nyrstar NV's board members concealed positive news from the public, shareholders, and creditors. For example, the discovery of a significant zinc reserve in a mine in Canada and elsewhere; or the positive impact of a transformation program that optimised Nyrstar NV's finances. Instead, the board focused on issuing negative news reports, including an ambiguous profit warning that caused Nyrstar NV's shares to drop.

The staging of a liquidity crisis ultimately caused Nyrstar NV to accept a restructuring scheme led by Trafigura. Restructuring was completed in 2019 and led to the expropriation of the minority shareholders of Nyrstar NV. In 2019, 98% of the operational assets of Nyrstar NV passed into Trafigura's hands. An insignificant 2% shareholding remained with the listed Nyrstar NV, now a zombie company of just EUR 47 million, a fraction of the EUR 2 billion capitalisations it was.

Our examination of the facts shows that the restructuring plan had been allegedly planned and executed in advance by applying infiltration, undermining, and ultimately takeover. The restructuring of Nyrstar NV was apparently not an act of rescue but of deception to absorb the operating assets of Nyrstar NV into Trafigura. The board of Nyrstar NV implemented it under the pretext that minority shareholders still retained some value. The board of Nyrstar NV was allegedly not fulfilling its fiduciary duties. It was not independently acting in the interest of the company. It served only the interests of Nyrstar NV's major shareholder: Trafigura.