Bluescope sweetensTaharoa ironsands mine sale with $51M cash payment

Tuesday 4th April 2017

Former timber industry lobbyist-turned-tourism entrepreneur Wayne Coffey will take management control of the Taharoa ironsands mining lease on Maori land near the Glenbrook steel mill following completion of a deal with New Zealand Steel's ASX-listed owner Bluescope Steel, scheduled for April 30.

Taharoa Mining Investments Ltd, currently listed on the Companies Office as 100 percent-owned by the Taharoa C Block Incorporation, will take over the leases, which involve supplying substantial tonnages of titano-magnetite iron ore sands, mined on the beach at Taharoa and piped to an offshore loading point to three leased ships, for use in North Asian steel mills.

TMIL will also take on some $76.5 million of liabilities relating to the current ironsands mining operation.

In return, Bluescope will "make a cash contribution of approximately $51 million" to TMIL, allowing Bluescope, which is aggressively seeking balance sheet rationalisation as fortunes in the global steel market continue to improve, to declare a reduction in corporate net debt of $25.5 million.

Coffey told BusinessDesk the deal was "complex" and that confidential elements of the transaction meant there was "a good price paid" by TMIL, which BusinessDesk understands to have been in the several hundreds of millions of dollars.

Coffey said his private company, Melrose Private Capital, would have a minority stake in TMIL of a size yet to be disclosed. Taharoa C would have a majority shareholding but no governance or management control.

Coffey is currently listed as the sole director of TMIL and has worked for some years as chief executive for the non-tribal Maori incorporation on its commercial asset base, which includes forestry and tourism assets. There were "some commitments from both sets of shareholders", he said.

Taharoa C has a wide shareholder base that owns the land at Taharoa, a black-sand beach area on the northern Waikato coast. Coffey is also a director of Taharoa Tourism Ltd, which runs Waitomo Caves Hotel as part of the Wellesley Hotels and Resorts chain, of which Coffey is a director and which took over the hotel from the previous owners in June 2014.

Neither Coffey nor Bluescope would comment on what price TMIL is paying for the lease, but Coffey said it was "completely wrong to say we have been paid to take it away".

"There are other transactions that go in behind that. How it gets there is quite a convoluted process," he said.

Bluescope declined to comment on the $51 million cash contribution.

"The Tahaora export business was identified some time ago as not part of our strategy moving forward and this transaction simplifies our portfolio and further reduces future risk against commodity price volatility and existing shipping lease commitments etc," Bluescope spokesman Michael Reay said in an emailed comment.

Coffey said the investment was "good news for Wellington" as he would be hiring a team of around 20 in the city to take on work currently done in Australia or at the Glenbrook site as well as continuing to hire a workforce of 170 in the mining operation and returning the operation to New Zealand ownership.

NZ Steel has mined Taharoa ironsands for export to Asian steelmills since 1972, but Bluescope placed the asset on the market for sale in February 2016 as it sought ways to make its New Zealand operation commercially sustainable.

Bluescope's New Zealand operations, which also include the Pacific Steel business bought from Fletcher Building in February 2014, saw a substantial turnaround to achieve earnings before interest, tax, depreciation, and amortisation in the half-year to Dec. 31 of A$59.4 million from a loss of A$15.5 million in the same period a year earlier, following a cost reduction drive, higher global steel prices and synergies between the Pacific and NZ Steel businesses.

However, the company said at the time that there was "further work to be done to determine whether the Glenbrook operations can be internationally competitive and profitable through the cycle".

Ironsands exports rose in the first half to 1.689 million tonnes from 1.395 million tonnes in the same half a year earlier, although a maintenance outage on the buoy used by ironsands tankers for anchorage while loading the sands at sea was expected to cost Bluescope between A$10 million and A$20 million in second-half revenue.

The Melrose Private Capital website says the value of ironsands exported annually has been around $200 million.

(BusinessDesk)

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