21/01/2010 - 00:00

Griffin’s unravelling Collie empire attracts a host of suitors

21/01/2010 - 00:00

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Two weeks after administrators were appointed, the future of Rick Stowe’s Griffin Coal business remains opaque.

Griffin’s unravelling Collie empire attracts      a host of suitors

DETERMINING who, if anyone, is willing to come to the aid of Rick Stowe’s Collie coal and power businesses remains a question that could take months to answer.

KordaMentha administrator Brian McMaster has flagged either a restructure or sale to recover the $1 billion in debts currently claimed against Griffin Coal, Griffin Energy and three other subsidiaries.

According to Mr McMaster, more than 20 groups have already expressed interest in Griffin’s assets in total or in part; a number he expects to grow as time goes on.

Without naming names, Mr McMaster has revealed the list comprises domestic and international companies from the financial, energy and coal sectors, including Chinese and Indian groups.

While that may sound reassuring, any rescue ultimately hinges on the commercial appeal of Griffin’s assets and the support of bondholders owed $538 million (see story p7).

That in turn means resolving Griffin’s still fluid mountain of debt and the specific challenges facing Griffin’s coal and power business.

On the coal front, quality and volatility issues have made exporting problematic, limiting the viability of transporting the coal any further than the nearest power station

Griffin also employs almost twice as many workers to produce the same volume of coal as its Collie neighbour, Wesfarmers Premier Coal.

It has also persistently failed to meet volume and quality specifications of its contract with electricity generator Verve Energy, which will buy Wesfarmers coal exclusively from July.

Wesfarmers is the most likely bidder for Griffin’s coal business and could expect significant synergy gains by combining their adjoining pits at Muja.

Wesfarmers spokesman, former premier Alan Carpenter, told WA Business News only that the group was “watching with interest”.

But Wesfarmers-backed advisory, Gresham Partners, is understood to be working on an offer for Griffin’s Muja and Muja South coal reserves. That would free Griffin’s Ewington mine and Bluewaters power businesses to be sold separately.

A possible consolidation and float of Wesfarmers and Griffin’s Collie coal assets is a possible longer-term option for Wesfarmers.

Vikas Rambal’s Perdaman Chemicals and Fertilisers, which has a 25-year coal supply deal with Griffin for its planned $3.5 billion Collie urea project, is another local firm watching Griffin closely.

Perdaman director Andreas Walewski said taking a direct stake in Griffin’s rescue was unlikely, but its supply deal made it important to any restructure.

“We would be keen to talk to any buyer and my guess is that any buyer would be keen to talk to us,” he said.

One conceptual option to emerge is for major coal or energy consumers to jointly bid for Griffin’s business.

Newmont Mining and Worsley Alumina already have power deals with Griffin, while alumina giant Alcoa has led the charge over a feared long-term energy shortage in WA.

All three are also actively involved in energy supply, most notably Alcoa, which took a 20 per cent stake in the rescue of the Dampier-Bunbury gas pipeline in 2004 in partnership with Macquarie/AMP-controlled utilities trust DUET.

Mr Walewksi said Perdaman was unlikely to instigate such a move, but might consider joining a customer consortium if “that’s the only option to keep the mine going”.

Alcoa energy manager Mike Shaw said that Alcoa “naturally looks at any opportunities or assets that may improve the energy landscape”.

Specialist utilities investors, such as DUET or Westpac-controlled Hastings Funds Management, are also considered possible players, though the prospect has been diminished by the impact of the global financial crisis.

“All those utilities and infrastructure funds have pretty much run their race,” one senior Perth investment adviser said.

Nonetheless, consortium bids could include other specialists, such as Melbourne-based Kempe Group, which recently became a 50 per cent partner in the overhaul of Verve’s ancient Muja A/B power station.

Private Queensland energy group ERM Power also said it was watching events in WA closely, though it has so far invested exclusively in gas-fired generation here.

While Verve and Synergy could benefit by acquiring Griffin’s high efficiency generation assets, their involvement is restricted by regulations associated with the break-up of Western Power.

Verve is still bound by a 3,000-megawatt cap on its generation capacity, while Synergy noted that it is prevented from entering the generation market until at least 2013.

Meanwhile, groups such as China’s Yangkuang Group, which visited Perth early this month, dominate speculation about foreign interest.

After its Yanzhou Coal unit last year paid $3.5 billion to buy NSW miner Felix Coal, Yangkuang this month formalised a joint venture with Bauxite Resources to study a multi-billion dollar alumina refinery and smelter development near Bunbury.

Sources also confirmed that China Railway Materials Corporation, a backer of failed Oakajee port bidder Yilgarn Infrastructure, had been involved in talks to recapitalise Griffin Coal, though its interest had waned as the true extent of Griffin’s problems became clear.

Fellow Chinese groups CITIC and China Metallurgical Corp (MCC), which are together building the $5 billion Sino Iron project in the Pilbara, are also understood to have been approached to join a Griffin recapitalisation.

Meanwhile, private iron ore and coal miner AMCI Holdings has emerged as an outside candidate given its plans to develop its $100 million Vasse coal mine near Margaret River.

AMCI declined to comment on Griffin, but founder Hans Mende – a long-time business partner of former BHP Billiton chief Brian Gilbertson – is flying to Perth next week to discuss further potential investments in WA.

Coal India, which is in talks over at least 15 Australian coal projects, has also been touted as a possible bidder, alongside smaller counterpart Gujarat NRE Coal. But a spokesman for NRE, which last year bid for Kimberley coal developer Rey Resources, said it was more focused on organic growth options in NSW.

US giant AES Corp, a backer of the stalled Coolimba coal-fired power proposal at Eneabba, and Singapore Power are also thought to be monitoring the situation at Griffin.

SingPower’s listed SP Ausnet arm and SPI Australia business own major energy businesses in eastern Australia, including a batch of former Alinta gas and electricity businesses.

Regardless of the final level of real interest in Griffin’s coal and power assets, Mr McMaster last week predicted it could take nine months to determine the best way forward.

 

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