A 500M bill: Gov’t to buy Store Norske’s properties for 295M, provide 205M loan; ‘great risk’ remains

sveaminers

It hands all of Store Norske’s property to the government and allows the cash-starved coal company to continue mining through 2016, but there is still a “great risk” of the company shutting down after that if the market slump continues.

Those assertions are spelled out in detail in a bill submitted Tuesday to Parliament authorizing the government to purchase all of Store Norske’s land and infrastructure for 295 million kroner, and providing the company with a 205 million kroner loan.

The 500-million-kroner package is more generous than the 450-million-kroner loan the company applied for in January, but the terms give the central government far more control over the company’s future development and possible expansion into other industries.

“The proposal means that the state will have direct ownership of the ground properties and infrastructure in Svalbard which today is owned by SNSK Group, while provision is made for further operations by SNSG,” the bill submitted by the Ministry of Trade, Industry and Fisheries states.

The bailout, which apparently has a majority of support in Parliament, was greeted with relief – but not excessive celebration – by local miners and other residents when the overall amount, but not specifics, was announced last month. The legislation confirms their caution is warranted since the company’s long-term future is still highly uncertain.

“The liquidity supply initially provides the foundation for coal operations to a limited extent in 2015 and 2016, but with the possibility of operating beyond 2016,” the bill states. “The latter will include depend on whether market conditions evolve positively, whether the company succeeds in reducing costs and obtaining new financing. If market conditions do not improve, there is great risk that coal operations at SNSG by the end of 2016 may be dismantled.”

The company lost a record 537 million kroner in 2014 and the current coal price of about $60 a ton is still well below the $75 Store Norske projected it would need to break even. It initially cut its operations in half by closing the new Lunckefjell mine, but work there has resumed because it contains a higher quality coal that could be sold to the metallogenic industry at higher prices.

Store Norske is already 99.9 percent owned by the government, but transferring the properties directly to to government – and acquiring the few privately-held shares – “may provide the state ownership more flexibility for managing the further development” of the company, the bill states. The company, in its original loan request, wanted to use 50 million kroner to branch out into other industries such as consulting on Arctic infrastructure and industry in other areas.

The government is hastily overhauling a “white paper” defining policy goals for Svalbard, which will play a key role in determining “how the state can contribute to the restructuring of the Svalbard community,” the bill states.

Longyearbyen Mayor Christin Kristoffersen, who has led the local political lobbying effort to obtain a bailout for Store Norske, said she considers the legislation fair in light of the crisis the company is experiencing and giving the government direct control over a large portion of local property may ultimately have a positive result.

“I think it’s natural that they do it that way,” she said. “That way we secure Norwegian interests by ensuring that property will stay in Norwegian ownership.”

“In the future if we need to develop something that’s very different than it is today than it could have an effect because with the relationship between the local and central governments we could find other uses for that property, and that would be a good thing.”

The loan to Store Norske will be at a high rate of interest – 12.45 to 17.45 percent – due to its high risk. Store Norske Administrative Director Wenche Ravlo told Svalbardposten the terms of the loan and property acquisition are consistant with what was discussed in negotiations, and she agrees the company’s future is still far from stable.

“It is a high-risk loan and there is a high probability that the full amount may be lost,” she said. “It should be priced accordingly.”