Many Players Interested in Slice of Griffin Coal

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Researched by Industrial Info Resources (Sugar Land, Texas)--West Australian coal miner Griffin Coal (Perth) has been placed in administration following the company's missing a crucial payment to the Australian Tax Office (ATO). The company owes the ATO A$208 million and has debts in excess of A$700 million, including US$520 million to U.S. bondholders.

Griffin is a private company owned by Ric Stowe, who called in administrator KordaMenta after two last-minute rescue attempts failed last week. One of the attempted rescues involved Perdaman Chemicals, and the other U.S. fund manager Harbinger (New York, New York), a major holder of Griffin bonds.

Local and international companies have already shown interest in buying the company or taking part in a restructure. The administrator stressed that Wesfarmers (ASX:WES) (Perth)--the most logical buyer according to analysts--was far from the only potential bidder. As well as appealing to Wesfarmers, the Griffin assets are likely to catch the eye of Indian buyers, such as Coal India Limited (Kolkata).

West Australian coal mines produce more than 5 million tonnes of coal annually, most of it used in domestic power stations. Griffin's coal assets include the rich Ewington seam north of Collie, and industry sources have said that Griffin should not have been losing money, despite the increases in costs last year. The coal mines in Collie were an excellent source of income, but it is believed that demands from other parts of the company, including power stations (Bluewaters I and II), property, and agriculture, left Griffin without funds for the A$25 million repayment due at the end of December 2009.

Griffin's problems started in 2005, when the company lost valuable contracts to supply utility Verve Energy from July 2010, which forced Griffin to find other markets for its coal--namely, building private power stations and exports. Griffin had been supplying coal to Verve at up to $70 a tonne under historical contracts designed to keep mines and power stations near the Western Australia town of Collie open, but Wesfarmers undercut these by about 40% in a 2005 government tender process.

Griffin currently exports hundreds of thousands of tonnes of coal each year and aimed to expand this by upgrading the Bunbury port facilities. Analysts said a lack of information about the privately held Griffin's reserves made it hard to put a price on the business. Wesfarmers Premier coal unit is valued by analysts at about A$300 million.

The Western Australian government is considering paying A$4 million in advance to Griffin to provide the company's administrator some breathing space, as this would pay for two weeks of production. The sale or restructuring of the business is expected to take a few months.

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