Lyttelton eyes up Timaru with Solid Energy deal

By Chris Hutching

Friday 21st June 2002

Uncertainties about future container trade and loss of dairy business to Port of Timaru were two of the drivers behind Lyttelton Port Co's historic 15-year multimillion-dollar deal with Solid Energy signed last week.

The announcement came as analysts were awaiting a major announcement from Port of Timaru about a similar deal with a key customer - rumoured to be Fonterra Co-operative Group.

But the size of the Lyttelton-Solid Energy deal is considerable and will require shareholder approval to comply with s129 of the Companies Act 1993 rules in relation to: "A transaction which has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities equivalent in value to the value of the assets ... "

Lyttelton Port's total non-current assets are $65 million and net assets are $43 million, according to the last annual report to June last year.

The port company and Solid Energy have been negotiating for several years with Solid Energy, exploring alternatives such as building a port at Westport, barging coal and considering options to redevelop a port at Shakespeare Bay in Marlborough.

The last option is still under consideration for the future and will provide Solid Energy with a bargaining chip that may prevent it becoming a captive port user.

The volumes of coal are expected to increase from 1.8 million tonnes a year up to four million tonnes over the next four or five years and the capital expenditure proposed by the port will improve handling facilities and reduce offloading times from two hours to 40 minutes.

Solid Energy will pay a fixed multimillion-dollar fee plus an index tonnage charge.

The increased volumes of coal will be mined from new ventures and improved production from Solid Energy's West Coast operations.

A $40 million government bailout has helped the coal company recover from near-disaster in the mid-1990s when it was caught with long-term hedging when the currency went against it. More recently it has resumed investment in new production.

Meanwhile, Lyttelton Port Co is also negotiating with wharf workers for labour flexibilities that it says will help clinch new maxi-sized container business but managing director David Viles is unable to comment about any aspects of the talks.

Earlier this year he highlighted the need for labour flexibilities in a media report and was taken to task by the unions involved who said he was breaching the new good- faith bargaining provisions.

The unions were further annoyed when his comments were supported by Christchurch mayor Garry Moore, whose council owns 66% of the company and has come under fire for the large special dividends extracted in recent years rather than applied to capital expenditure.

Trading for Lyttelton Port Co was flat during its full 2001 financial year but in the latest interim result ending December 2001 it reported an 18% improvement of $7.8 million after tax compared with $6.6 million for the previous corresponding period, striking a slightly higher interim dividend of 3.75c a share.

At that time chairman Brent Layton said the company was facing significant challenges to retain and grow business. Coal tonnage during the six-month period under review fell 3% with 844,300 tonnes exported through Lyttelton compared with 866,900 tonnes in the six months to December 2000.

This week, Mr Viles dismissed complaints from the Captive Port Customers' Group about misuse of the port's monopoly against smaller customers. Mr Viles said it worked both ways when a company spent money on facilities for particular customers.

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