Nyrstar’s board has approved the $350 million redevelopment of its smelter at Port Pirie, with the State Government agreeing to give full support for contingent liabilities, estimated at $315 million.
The company’s Belgium head office announced that Nyrstar had completed its Final Feasibility Study for the proposed redevelopment of the Port Pirie smelter into an advanced metals recovery and refining facility.
“Subject to finalisation of all agreements relating to the funding and support package, the Nyrstar Board has approved the redevelopment,” the announcement said.
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 MP Geoff Brock to take on contingent liabilities related to the cost of the transformation project at the Nyrstar-owned lead smelter in Port Pirie.
Brock and Premier Jay 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 underwite the $385 million 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.
If South Australia is required to take on the Federal Government commitment, that figure rises to $265 million; it could rise further if Nyrstar asked the state to take part of the company’s own exposure.
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 $100 million forward sale of silver was also subject to a guarantee – and that’s where the taxpayers of South Australia came in.
If Nyrstar pockets the $100 million, but is prevented from making and supplying the silver because of environmental problems, then the buyer will get their money back from the SA Government.
Just what those circumstances might be is unclear.
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.”
Today’s agreement to replace the Federal Government underwriting adds another $150 million to the state’s potential liabilities.
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