Nyrstar has announced a $514 million investment – underpinned substantially by the State Government – to transform its Port Pirie smelter into an advanced metal recovery and refining facility.

The investment, $291 million of which is underwritten by the South Australian Government, follows last month’s approval for the project by the board of the  Belgium-based company, with details announced in Port Pirie a short time ago.

Local MP and Regional Development Minister, Geoff Brock, who secured the government guarantee as part of his deal with Premier Jay Weatherill to support Labor’s minority government, said the upgrade would create 400 jobs in the town during construction.

“This is a very significant day in the history of Port Pirie,” Brock said.

“As the local member and former smelter employee, I’ve worked very hard behind the scenes and lobbied for several years in an effort to see the smelter transformation become a reality. The upgrade will create up to 400 jobs during construction, providing certainty for our local community about their future and lead to better health for their children.”

Weatherill said the redevelopment would be accompanied by a 10-year, $50 million “targeted lead abatement program” to develop strategies to reduce blood lead levels in the local community.

Nyrstar chief executive officer Roland Junck said major construction work would begin early next year, with the facility to be fully operational by the end of 2016.

“The funding agreement gives us the certainty we need to move forward and transform Nyrstar Port Pirie into an advanced metal recovery and refining facility that will benefit all our employees, the Port Pirie community and our investors,” Junck said.

The project is expected to improve the plant’s efficiency and “significantly reduce emissions”.

Nyrstar also announced today that zinc metal production would end at Port Pirie by the end of July, with the plant expected to close by the end of 2015.

Nyrstar said it would “consult employees and their representatives about the closure with a focus on available retraining and redeployment opportunities to other parts of the Port Pirie operation”.

The Government said the financing package had three components:

• A direct contribution from Nyrstar of about $103 million.
• A seven-year, approximately $291 million third-party funding guarantee underwritten by the South Australian Government, with risk management supported by the Commonwealth’s Export Finance and Insurance Corporation.
• A further contribution from Nyrstar of about $120 million, to be raised through “a transaction for the forward sale of silver output from the redeveloped Nyrstar Port Pirie facility”.

Treasurer Tom Koutsantonis said the Government’s commitment allowed Nyrstar to secure external lenders, with the assurance their contribution would be underwritten by the State.

“On the basis of all the information available, including extensive due diligence, the Government is comfortable this investment is technically, commercially and financially viable,” he said.

Nyrstar’s board approved the redevelopment in late April after it completed its final feasibility study for the project.

The company said that on 29 April 2014, “Nyrstar was informed by the South Australian Government that final Cabinet approval has been obtained to provide contingent support for the full amount of the third party funding”.

“Nyrstar and the South Australian Government are in advanced stages of finalising the agreements providing for this critical element of the proposed redevelopment,” it said.

“The South Australian Government has advised Nyrstar that these documents will be executed by no later than 16 May 2014 at which time the final investment decision will be announced by Nyrstar and the South Australian Government.”

The State Government’s deal with the Belgium group follows its agreement with Port Pirie-based independent Brock to take on contingent liabilities related to the cost of the transformation project.

Brock and Weatherill told ABC Radio in late March that the deal for the independent to support a minority Labor Government included a commitment to further indemnify the Nyrstar project, should other proposed arrangements fall over.

“I thought the deal was signed sealed and delivered,” Brock said on 24 March, the day after he inked the deal for Labor to retain government.

The deal Brock referred to was the Federal Government’s expected $150 million commitment to partly underwrite the transformation project.

“Jay Weatherill has given me an undertaking that if that’s not successful it’ll be funded through the State Government,” Brock said at the time.

Weatherill has now delivered on that promise.

InDaily understands Nyrstar first approached the State Government during the caretaker period prior to the election, asking for an extension of the State Government’s underwriting of financial risks associated with the transformation project.

In the 2013-14 State Budget papers of last June, State Government exposure in the complex deal to transform Port Pirie’s ageing smelter into an “advanced poly-metallic processing and recovery facility” had been estimated at $115 million.

InDaily reported last month that if South Australia was required to take on the Federal Government commitment, that figure would rise to $265 million, and could rise further if Nyrstar asked the state to take part of the company’s own exposure.

Today, the commitment has been revealed as $291 million.

Smelter owner Nyrstar’s transformation project – a last ditch bid to keep the business profitable and environmentally acceptable – had attracted joint federal and state government support.

The capital investment required for the transformation – estimated in December 2012 at $350 million – included $100 million from Nyrstar, another $100 million from the forward sale of silver produced at Port Pirie and $150 million from third party investors.

The $150 million was to be being underwritten by a guarantee from a Federal Government agency, the Australian Export Finance and Insurance Corporation (EFIC).

The forward sale of silver was also subject to a guarantee – and that’s where the taxpayers of South Australia came in.

A spokesman for the State Government told InDaily last June: “The State Government has agreed to provide the counterparty to the silver forward sale an indemnity/guarantee of up to $115 million with respect to their investment that would apply in the limited circumstances where the redeveloped Port Pirie is unable to meet its obligations under that forward sale as a result of the crystallisation of any historic and contingent environmental liabilities.

“This indemnity/guarantee is an important part of the funding package and will provide greater security to external financiers to invest in, or fund, the redevelopment against the potential adverse financial effects of these historical and contingent environmental liabilities.”

– additional reporting by Kevin Naughton