A ratings downgrade for Nyrstar has cast doubt on a $291 million repayment by the company to the state government. Leading international ratings agency Moody's said its downgrade reflected that the company's capital structure could become unsustainable.
It said this was because of a weaker than previously expected earnings trend and limited prospects of a sufficiently strong recovery of operations.
"The ratings also factor the company's capital structure review and the possibility that this could result in a default," it said. "The company's financial profile is very weak owing to a tight liquidity position which could become inadequate because of working capital outflows recently experienced and the increased risks of the company's big metal prepay liabilities not being rolled over."
The company's financial profile is very weak owing to a tight liquidity position ...Ratings agency Moody's
Other factors were diminished earnings and a highly-leveraged capital structure.
Nyrstar is the owner of the Port Pirie lead and zinc smelter where five managers are believed to have departed the company in the past month including the manager of the new furnace and the health and safety manager.
Reports have circulated in the town of the departures of tradesmen.
In 2014, Independent Frome MP Geoff Brock negotiated a $291 million loan guarantee for the smelter's $660 million "transformation". This deal was reached with the newly-elected state government in return for Mr Brock's support in parliament.
Mr Brock was on Thursday gathering information about the state of the smelter and hoped to discuss the situation with Treasurer Rob Lucas. Speculation has intensified that the plant could soon have a new owner. Some commentators have suggested Whyalla steel-maker Sanjeev Gupta is waiting in the wings to pounce on the smelter.
Business Port Pirie president Mark Hanlon said that commissioning of the new plant needed to be achieved as soon as possible "so that any adversity is behind us":
"There is no doubt that whoever owns the plant in the future, it will be very profitable," he said. "We hope any losses of jobs are minimal and it won't be long before they actually start to employ people again."
A smelter spokeswoman was unavailable.
SA-BEST MPs Frank Pangallo and Connie Bonaros demanded that Mr Lucas talk to the company's chairman and chief executive officer.
"We implore the Treasurer to get on the phone," Ms Bonaros said. "Nearly $300 million taxpayers' money is at risk - something this state can ill afford.
"It is critical that the people of Port Pirie - many of whom are directly or indirectly employed by the smelter- are told what is going on. Their futures - and that of the entire city - depend on it.
"It is most concerning that the Treasurer has revealed only on Thursday that a $20 million payment promised by the company earlier this year is still yet to be paid after it missed deadlines in May and November last year.
"The government must get an update from Nyrstar on the health of its business."