Grappling with depressed nickel prices as electric vehicle sales slow, held hostage by both the dominance of Chinese refiners in Indonesia and deteriorating operating conditions in New Caledonia, while blindsided by Gabon's sudden ban on manganese exports, Eramet is also facing a governance crisis revealed by the dismissal of its CEO and CFO last February.
Officially, the management style of the individuals involved was deemed insufficiently transparent or collegial. Unofficially, rumors suggest they may have drawn on a bank credit line without board approval. Informally, reports gathered by our team from Les Échos point to an open conflict between company executives and the Duval family, with the former demanding asset disposals to shore up the balance sheet and the latter opposing such measures.
This morning it was announced that the Duval family, the group's largest shareholder and a pillar of its capital alongside the French state - which is decidedly rarely involved in winning bets - wishes to throw the towel in and exit. The family is thus attempting to limit the damage ahead of a necessary refinancing, signaling that they are seeking a strategic buyer rather than facing a capital increase in which they do not intend to participate and which would ruin them.
Without deep upstream restructuring, the rescue of Eramet was "mission impossible" from the start. Six out of the last ten fiscal years have seen negative cash flows, four of which were deeply in the red. Consequently, dividend distributions have been sporadic and uneven, while net debt has increased and interest expenses have quadrupled over the period.
Eramet's management for a time - and rightly so - blamed the European Union for its lack of support for the continent's mining sector. If the experience of recent decades has served as a reminder - for this is nothing new - it is that mining groups can hardly prosper without an active support policy from their governments.
This paradigm has been illustrated and even magnified by China, which has become a world leader in battery production and rare earth refining under the direct impetus of Beijing. The Middle Kingdom has thus forged a unique and non-replicable strategic and industrial lever, which the United States is now attempting to emulate after a serious delay. In contrast, radio silence and a "wait-and-see" attitude prevail in Europe.
At Eramet, apart from a Chinese buyer, it is difficult to see who could act as a white knight given the geographical distribution of the group's asset portfolio. The positive market reaction to the announcement of the Duval family's intention to withdraw suggests that discussions have already reached an advanced stage. The French state will, of course, be one of the stakeholders with a say in the matter.
Following the Financial Times and MarketScreener articles, Eramet issued the following statement:
“In response to rumors regarding the intentions of its shareholders or the management of their holdings, Eramet reminds the market that its reference shareholders have committed to voting in favor of the resolutions required for the €500 million capital increase, as announced on February 18.
Eramet is currently preparing this capital increase to ensure its successful completion. The Duval family's decision to appoint a financial adviser is standard practice in the context of a strategic capital increase for the Group and does not prejudge the shareholders' ultimate intentions.
Eramet, with the support of its reference shareholders, remains fully committed to ensuring the success of this capital increase, in the best interests of the company. Any further material information will be communicated to the market.”
