Griffin Group to spend $240m on coal operations

Rick Stowe's Griffin Group is planning to spend $240 million upgrading and expanding its Collie coal mining operations, which are the mainstay of the privately-owned group's diverse business activities.

Ratings agency Standard & Poor's provided a rare insight into Mr Stowe's business activities when it issued a ratings report for a US$50 million (A$65 million) note issue by The Griffin Coal Mining Company Pty Ltd.

The proposed note issue follows Griffin's US$400 million (A$520 million) note issue last year.

S&P said Griffin plans to spend $240 million over the next three years on the development of the Ewington 1 and 2 coal mines and the refurbishment and expansion of the charring plant and coal-drying facilities.

These figures do not include Griffin's investment in the $400 million Bluewaters coal-fired power station, which is being funded independently.

S&P said Bluewaters would require a A$55 million capital investment, with the balance presumably debt financed.

Griffin is one of only two coal mining companies in Western Australia, with its open-cut mining operation located adjacent to Wesfarmers' Premier Coal business.

Construction of the Bluewaters power station and the $180 million Emu Downs wind farm reflect the group's diversification into energy generation.

The full text of an announcement from ratings agency Standard & Poor's is pasted below

Standard & Poor's Ratings Services today said it had assigned its 'BB-' long-term issue rating to The Griffin Coal Mining Company Pty Ltd.'s (Griffin Coal; BB-/Stable/--) proposed US$50 million senior unsecured notes due Dec. 1, 2016. The proposed note issue follows the company's inaugural US$400 million Rule 144A (without registration rights) note issue in November 2006. The additional US$50 million note will be issued under the same indenture governing the outstanding US$400 million, 9.5% senior notes due Dec. 1, 2016.

The additional funds will be held to support the company's liquidity position ahead of its significant upcoming capital-expenditure programs. The company's temporary cash position after the new debt issue will be about A$240 million. Standard & Poor's expects these funds to be available to fund the company's proposed capital expenditure over the next three years. The capital program relates to the development of the Ewington 1 and 2 coal mines and the refurbishment and expansion of the charring plant and coal-drying facilities. The capital spend is expected to be about A$90 million in fiscal 2007, A$70 million in fiscal 2008, and A$80 million in fiscal 2009. Griffin Coal's investments in the Bluewater 1 and Bluewater 2 power stations, which are funded independently, are not included in the company's expenditure program. The Bluewater 1 power station is currently under construction and will require a capital investment of about A$55 million in two stages (A$30 million during construction and A$25 million at completion). Negotiations are continuing on the proposed funding and engineering contracts associated with the Bluewater 2 power station.

Griffin Coal is privately owned by the Stowe family and is one of only two coal mining companies in Western Australia. The company's coal mines are located in the Collie region of Western Australia. The rating on Griffin Coal reflects the company's limited mine and geographic diversity, significant short-term capital expenditure, changing customer mix, reliance on growth plans of key industrial customers, and limited financial disclosure due to its private company status. These weaknesses are mitigated by the company's low-cost coal mining operations, its strong market share and contractual relationships with key Western Australian industrial customers, the favorable proximity of mines to proposed power-generation plants and industrial customers, and a long reserve life.