ADVERTISEMENT

Auditor Warns on Nyrstar Accounts After Probe of Trafigura Deals

Auditor Warns on Nyrstar Accounts After Probe of Trafigura Deals

(Bloomberg) -- Nyrstar NV’s auditor has warned that incomplete disclosures relating to supply deals with Trafigura Group Ltd. could affect the accuracy of the zinc producer’s financial reports, bringing fresh scrutiny to the deep commercial relationship between the two companies.

As part of an investigation into the deals struck with Trafigura, one of the world’s biggest commodities traders, Deloitte challenged Nyrstar’s management over issues including the accuracy of its statements about the processing fees it receives under the contracts. These so-called treatment charges are one of the main sources of profitability for the company. Deloitte’s report was appended to restated accounts filed by the company late on Friday.

After discussions with management, Deloitte said it has been unable to obtain sufficient details about the relationship with Trafigura and warned that such information may not be reflected in Nyrstar’s annual accounts. Its examination included a review of “contradictory audit evidence” contained in an email between Nyrstar management and its lawyers relating to its commercial agreements with Trafigura.

It also said it was unable to obtain full details about the timeliness of Trafigura’s provision of funding during critical talks to restructure Nyrstar’s debts last year.

Nyrstar said it disagreed with Deloitte’s conclusions. Representatives for Nyrstar and Trafigura declined to comment.

Nyrstar’s restructuring deal ultimately resulted in Trafigura taking over the zinc producer’s operational assets in July, while bondholders faced large writedowns and existing Nyrstar shareholders were virtually wiped out. While the restructuring deal was signed off by courts in the U.K., investors in the company have launched legal proceedings in Belgium, claiming Nyrstar’s contracts with Trafigura were exceptionally onerous.

Deloitte also examined allegations made by Nyrstar’s former internal audit manager in a complaint to Belgium’s financial regulator, including claims that the company overstated the value of raw materials in its supply chain. Nyrstar has denied the allegations, and Deloitte said that after a review it was satisfied with the board’s conclusions about the claims.

The warning from Deloitte marks the second time that the firm has raised issues with Nyrstar’s accounting disclosures, after it refused to give an opinion on its annual report in May until further information had been received.

That decision related to Nyrstar’s omission of details about an external report on whether the deals with Trafigura had been conducted at arm’s length. Subsequently, Deloitte called in an external forensic investigator to probe whether management had intentionally held back the information, it said in the report filed on Friday.

While Deloitte found that the report was withheld due to individual error, it challenged Nyrstar over deficiencies in how it documented its assessment of the arm’s length nature of the deals.

To contact the reporter on this story: Mark Burton in London at mburton51@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Keith Campbell

©2019 Bloomberg L.P.