February 23, 2012 / 2:23 PM / in 6 years

UPDATE 2-Mining costs, lower smelting fees weigh on Nyrstar

* 2011 underlying core profit 265 mln euros vs 285 mln poll

* Sees zinc mining output rising by 50-70 pct in 2012

* Treatment charges seen falling in 2012 (Adds CEO comments, share price reaction)

By Robert-Jan Bartunek

BRUSSELS, Feb 23 (Reuters) - Nyrstar, the world’s biggest producer of zinc, raised its earnings less than expected in 2011 due to startup costs of its mining operations and said it would probably have to accept further cuts in its charges to process zinc this year.

By focusing more on mining, the Belgium-based group aims to produce 50 percent of the raw material it needs for its smelting activities in the medium term.

Underlying core profit for 2011 rose 26 percent to 265 million euros ($351 million), below the 285 million expected in a Reuters poll of six analysts.

Shares fell as much as 5.3 percent early on Thursday but recovered to trade about 2.9 percent lower at 1407 GMT.

“They had higher start-up costs in mining than expected in 2011. Besides that they were in line with my operational expectations,” a London based analyst said.

Nyrstar said its mines produced 207,000 tonnes of zinc in concentrate, towards the lower end of its guidance of 205,000 to 215,000 tonnes, but well above the 84,000 tonne output of 2010.

The group expects mining output this year of 310,000 to 350,000 tonnes, an increase of between 50 and 70 percent as more of its acquired mines become operational.

The group said it realised treatment charges of $230 per tonne last year, down from $255 in 2010.

Treatment charges, the fees that smelters receive from miners for processing zinc concentrate, dropped to $230 per tonne last year. The charges represent the major part of smelting income and are typically agreed on an annual basis.

Teck Resources Ltd and smelter firm Korea Zinc have agreed to fees of $191 per tonne, down more than 16 percent from last year, delegates at an industry conference told Reuters on Wednesday.

Chief Executive Roland Junck said that while he believed that there was no logic for further charge declines, Nyrstar would probably have to accept lower charges for its smelters as well.

“This is a question of power between the miners and the smelter and it is at this stage not in favour of the smelter,” Junck said.

Nyrstar said the new 2012 mining production target included 50,000 to 60,000 tonnes of zinc in concentrate from Finnish miner Talvivaara, which has a supply agreement with the Belgian group.

Talvivaara encountered operational troubles in 2011 that forced it to slash output targets but it said in January that production was back on track, with a new chief executive to start his job in April.

The price for zinc, a metal often used as an anti-corrosion agent, reached a high of $2,599.75 per tonne exactly a year ago, but have since declined to just above $2,000. Nyrstar said the average price for 2011 was $2,191.

Nyrstar said that a $100 per tonne decline in the price of zinc would have a 31 million euros negative impact on core profit (EBITDA) based on 2011 figures.

Junck said he aimed to make an acquition this year, adding Nyrstar had a strong enough balance sheet to do a takeover as large as its $639 million purchase of Canadian miner Breakwater last June without issuing new equity. ($=0.7552 euros) (Editing by Philip Blenkinsop and Hans-Juergen Peters)

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