NZ Coal Assets

Solid Energy sale proceeds with asset split. One new entrant confirmed
Matt Freeman - Mon, 24 Oct 2016
The Government has not yet announced the successful bidders in the Solid Energy sale process however Inside Resources can confirm and name one new entrant in the New Zealand coal sector.
It can also confirm one high-profile unsuccessful bidder and the emergence of an asset split.
Interests associated with Dunedin-based brothers Craig and Tony Hunter have emerged as the substantial new entrant in the New Zealand coal mining scene. The Hunters have successfully picked up the New Vale and Ohai coal mines in Southland. New Vale is the third largest coal mine in the country producing 315,000 tonnes of coal in the 12 months to 30 June 2016. It produces lignite and mainly supplies Fonterra. Ohai produced 31,000 tonnes in the same period.
Palmer Group
The Hunter brothers invest 50/50 in an investment company called Hunter Brothers. This company in turn has a 50/50 stake with McMahon Investments in Palmer MH. Tony Hunter is well known in the quarry industry.
Palmer MH owns Palmer Resources which in turn owns a series of industrial minerals assets in Canterbury including the Victory Lime and Springfield Lime operations, plus a bentonite quarry and processing plant near Coalgate.
Palmer MH also has a 75 per cent stake in Otago masonry company Viblock, and owns Palmers Mechanical, a Dunedin-based engineering company.
Hunter Brothers has a 25 per cent stake in Blackhead Quarries which owns the Logan Point and Blackhead quarries in Dunedin amongst others. Fulton Hogan owns 50 per cent of Blackhead.
Not in the mix
The big notable omission in the successful bidders for Solid Energy’s assets at this stage is Brent Francis’ New Zealand Coal and Carbon. Francis’ operations include the Roa and Echo high-value export coal operations on the West Coast.
The jewels in the crown - Stockton, Waikato
Inside Resources understands the big winner in the sales process is emerging as Bathurst Resources, however this can not be confirmed yet.
Bathurst declared early that it was chasing the Stockton export coal operation and the Southland assets.
It appears that Bathurst will now pick up the jewels in the crown and emerge as the largest coal miner in the country securing the Stockton export operation which produced 954 kilotonnes (kT) in the 12 months to 30 June 2016 [previous 12 month period: 1.3 mT].
It has also secured the Waikato thermal coal mines of Rotowaro [2015/16: 656 kT; 2014/15: 923 kT] and the recently restarted Maramarua coal mine. The Waikato mines supply North Island customers including New Zealand Steel, Genesis Energy and Fonterra, and compete with imported coal.
The Stockton and Waikato assets – the first and second largest coal mines in the country - add to Bathurst’s Southland (Takitimu) and Canterbury footprint, plus the large Escarpment coking coal project on the West Coast.
The addition of the Stockton export operation to its portfolio provides a perfect mining, processing, logistics and marketing accompaniment to its Escarpment coking coal project immediately to the South on the Denniston Plateau.
The question now is how would Bathurst fund such a purchase. Capital raisings have previously been suggested.
Inside Resources understands that its bid has been made from a joint venture with the Talley’s Group – a privately held South Island based food processor whose brands and operations include AFFCO, Open Country Dairy and Talley’s Seafoods - an operation which includes significant coal-fired energy components.
On the 20^th of September 2016 two Talley directors formed a new entity Talley Energy Limited.
On the 21^st of September 2016 another company - Phoenix Coal Limited - was formed which Talley Energy took a 35 per cent stake in alongside Bathurst Resources. This is believed to be the bid vehicle. In Greek mythology the phoenix was a bird that could be reborn from the ashes of its predecessor, and so the assets of Solid Energy may yet rise again.
Large volumes of Bathurst shares were traded on the ASX as the past week closed out with the company’s share price soaring and closing at AUD 5.4 cents, up from AUD 1.5 cents mid-August.
Other West Coast mines
This leaves the other assets, all on the West Coast, including the Reddale/Burkes Creek/Peerless, Spring Creek and Strongman mines. The latter two are in care and maintenance. There is also a range of permits around these mines plus the Reefton load-out and blending facility. Reddale produced 20,000 tonnes in the 12 months to 30 June 2016.
Negotiations are still underway for these assets with privately-held interests on the West Coast.
Conclusion
If the outcomes above are correct then it represents a big shake-up in the domestic coal sector. The South Island domestic coal market will watch closely how the new landscape unfolds.
Interestingly no international bidders have been successful.
Inside Resources understood that Waikato iwi Tainui made bids for the Waikato assets and that New Zealand Steel also considered lodging a bid. Thai energy and resources player Banpu and Australian Coal & Allied are understood to have bid for the whole lot.
The process was run by Goldman Sachs in Auckland.