Port Pirie is in shock after Nyrstar deferred its first $37 million loan repayment for the new redevelopment.
The decision was described as “surprising” by Treasurer Rob Lucas in state parliament on Thursday.
The company has begun a two-year ramping up the new $660 million multi-metals facility and had said an earnings uplift was due to start flowing from the project with at least $60 million expected in the second half of this year, $145 million next year and $190 million in 2020.
According to the Treasurer, the terms of the external financing arrangement for the redevelopment, which includes a $291 million government guarantee issued by the former government for the external finance raised, are “unusual”.
“To accommodate requirements of the Nyrstar consolidated group, Nyrstar Port Pirie has the discretion, but no obligation, to make repayments under the external financing arrangements,” he said.
“The repayment of the $291 million to the external financiers, and the government guarantee of this repayment happening, is a major exposure for taxpayers.
“A targeted repayment schedule was documented and the structure includes various economic compulsions to incentivise repayment.
“On May 28, Nyrstar is scheduled to make the first repayment .
“The government has been told that Nyrstar’s Board of Directors has decided this payment will not be made, due to cost over-runs, delays in completion of the project and reaching full production, and the impact on earnings uplift from the project to the company.
“The company has notified the government that the payment of $37 million scheduled for May 28 will be deferred.
“The deferral was surprising as the company, through its financial disclosures, has repeatedly and publicly indicated it intended repaying the funding arrangement according to the schedule.
“The Board of Directors has taken this action when Nyrstar Port Pirie has the financial capacity to make this payment.”
The government has demanded that Nyrstar Group members comply with their obligations.
Mr Lucas said the company had said it considers that it is not compelled to transfer this money, a position the state does not accept.
He said legal action could result.
“It is of concern that the company told the state of its deferral of this payment three days before its quarterly interim management statement disclosure to the market showing the opposite,” Mr Lucas said.
“The company has indicated it is likely to defer additional payments until November next year, estimated at about $81 million, that is, $118 million in total, which is likely to compound the exposure of taxpayers to the guarantee issued by the former government.
“I intend to defend the state’s position and we reserve our right to take steps that may be necessary to ensure Nyrstar meets its contractual obligations.”
Premier Steven Marshall briefed Independent Frome MP Geoff Brock on the situation before Question Time on Thursday.
Mr Brock is credited with “saving Port Pirie” through his brokering of the loan guarantee with the then minority Weatherill Labor government in 2014.
He said he was “disappointed and surprised” at the crisis.
“I know there have been some over-runs through time-frames,but this plant will have the greatest technology,” he said,.
“I have full confidence in the workers and the plant’s future. This is a decision of Nyrstar from Belgium. They need to transfer the money across.
“I have full confidence in the Premier and Treasurer to be able to work this out with the board.
“There was no indication of this whatsoever … I think it will work itself out.”