Schultz Partners bids for Griffin assets

The oldest and second largest coal supplier in Western Australia, the Griffin Coal Mining group, was placed in administration in January 2010 after missing deadlines for the payment of debt instalments and tax liabilities.

KordaMentha was appointed administrator of the group, which had total debts of about $700 million.

Griffin Coal has coal mines in the Collie area of south-west WA, supplying more than five million tonnes of coal annually and employing about 500 people.

The Griffin assets included the recently-commissioned coal-fired power stations Bluewaters 1 and 2, with a combined generation capacity of 458 MW.

Schultz partners registered as a bidder with Korda Mentha and caried out financial modelling of the assets with the information supplied by the administrator.

It then teamed up with a large overseas resource company to submit a bid for both the coal and power station assets.

Schultz Partners formed a consortium comprising former Griffin executives and advisers, mining contractors and mining engineers to carry out mine operations should the bid be successful.

After months of negotiations, Korda Mentha announced the successful bidder for the coal mining assets as Lanco Infratech, an Indian industrial conglomerate with a market capitalisation of about $2.6 billion.

The new owners intend to source coal from the operation for its power stations in India.

The Australian newspaper reported that Lanco paid up to $850 million for the mine.

"Lanco obviously paid a premium for a stratetic asset", Schultz Partners Managing Director, Ken Schultz said. "Our modelling indicated, on a purely commercial basis, a significantly lower valuation for the mining assets. We took into account that over $110 million will need to be injected just to upgrade rail and port facilities to lift coal exports to around 4 million tonnes per annum", he said.

“Schultz Partners modelled the projected increases in exports of coal to make this mine truly viable in the long term.  The current infrastructure plan, based on continued operations at the Kwinana Port, is incapable of sustaining the required volume.  We examined the viability of shipping via the existing Bunbury terminal and also constructing a new terminal at nearby Kemerton.  Our preliminary modelling suggested either of these options was viable and the cost would not exceed $180 million. 

With the help of former Griffin executives and contractors, we also modelled a number of improvements at the mine itself and found considerable savings and increases in output.  Our consortium proceeded on the basis of this modelling”, Mr Schultz said.

After further negotiations, Korda Mentha announced that a Japanese consortium comprising The Kansai Electric Power Company Inc and Sumitomo Corporation were the successful bidders for the Bluewaters 1 and 2 coal-fired power stations.

Sumitomo has a large shareholding in the Kwinana power station.

While a purchase price has not been disclosed, due to confidential clauses in the agreement, there is speculation the power stations were bought for around $1.2 billion

"Again this figure exceeded our valuation", Mr Schultz said. "But as there is funding in place to this amount, a buyer could walk in and take over the power station assets as long as they could meet the interest payments", he said.