Copper producer Aurubis sets out €185mn hit from suspected fraud

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Aurubis, Europe’s largest copper producer, said it had suffered a €185mn hit as a result of a suspected large-scale fraud perpetrated by suppliers in collusion with employees after discovering a shortfall of metals in its inventories.

The Hamburg-based company said on Tuesday that it expected operating pre-tax profits in a range of €310mn to €350mn for the financial year ending this month, down from a previous forecast of €450mn to €550mn before it unveiled the discovery of “criminal activity”.

Shares in the group crashed on September 1 after it revealed a suspected conspiracy between suppliers of scrap material and Aurubis employees in the sampling division, leading to lower levels of metal in its inventories than were recorded.

After Aurubis conducted an inventory check of metal stocks at its Hamburg site, the company identified a discrepancy of €185mn between what was listed and what actually existed.

Those discrepancies were mainly for stocks of precious metals such as gold, silver and palladium.

Aurubis on Tuesday provided clarity for the first time on the scale of the losses, after warning that the financial impact from the fraud could be in the “low” hundreds of millions of euros range when it revealed the suspected criminality late on August 31.

The figure covers inventory losses from two separate schemes: a physical theft of precious metals and a massive fraud to misstate the content of metal being supplied to Aurubis.

The company was raided by the police in June to investigate an “organised theft ring” related to missing goods in relation to which the authorities had secured arrest warrants worth more than €20mn.

The criminal organisations behind the two scandals are unlikely to be related, according to Aurubis, but the possibility cannot yet be ruled out.

Aurubis said it expected that insurance payouts of about €30mn and asset seizures should “partially compensate” for the losses. It has already implemented some measures to improve security.

The cases have sent shockwaves through the global metals industry, following a host of other scandals in the past year including Trafigura, one of the world’s largest commodity traders, becoming embroiled in a $590mn nickel fraud.

In the incident announced at the end of August, scrap samples sent to laboratories for testing were probably manipulated to show a certain content of metal that Aurubis would pay suppliers for. In fact no scrap, or scrap bearing far less valuable metal, would come to its site to be turned into usable material.

Europe’s largest producer of refined copper has staked its future on growth in recycling metals, including expansion in the US through a €300mn investment in a secondary smelter in Georgia.

Shares in Aurubis rose almost 3 per cent on Tuesday after clarifying the scale of the loss but remain 8 per cent lower than before it announced the fraud.

German steelmaker Salzgitter, which owns about 30 per cent of Aurubis and had also suspended guidance, said it planned to release an update for shareholders this week.

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