Announcement

MEETING: SPN: South Port 2019 Annual Meeting 11:00a.m. 
SPN  
08/11/2019 11:00  
MEETING  
NOT PRICE SENSITIVE  
REL: 1100 HRS South Port New Zealand Limited  
 
MEETING: SPN: South Port 2019 Annual Meeting  
 
8 NOVEMBER 2019  
 
2019 ANNUAL MEETING NZX AND MEDIA STATEMENT  
 
RIO TINTO REVIEW WARRANTS ATTENTION  
 
South Port New Zealand Limited has urged the Government to recognise the risk  
represented by Rio Tinto's strategic review of the viability and competitive  
position of the New Zealand Aluminium Smelter (NZAS).  
 
Speaking at the Port operator's Annual Meeting, South Port Chairman Rex  
Chapman said while there had been comment that Rio Tinto (the operator and  
majority shareholder in NZAS) was 'crying wolf', it would be wrong not to  
take the review seriously. "NZAS was well justified in arguing that it is  
paying too much for transmission costs."  
 
"It must be remembered that the NZAS was built in the 1970's in conjunction  
with the Manapouri Power Scheme with a dedicated transmission line. The book  
value of the dedicated grid infrastructure was $72M in 2014."  
 
More recently, Transpower has upgraded its infrastructure in the North Island  
and has spent several billion dollars doing so. It has sought to pay for  
this by charging all customers more. NZAS is now being charged $65-70M p.a.  
- almost the same as the book value of its dedicated transmission  
infrastructure."  
 
As a result of this, NZAS is now operating at a very significant loss, yet is  
obtaining very little benefit from Transpower's recent transmission  
infrastructure spend.  
 
The Electricity Authority has been undertaking a review of transmission  
pricing for the last ten years but it appears to be no closer to imposing a  
fairer model. Its latest proposal would reduce NZAS transmission costs by  
~$15M p.a. but only from 2024.  
 
"Quite apart from the serious financial impact on Invercargill and the  
Southland region the closure of the Smelter will still mean that the  
production loss at Tiwai will need to be met elsewhere in the world, most  
likely from a smelter that is not powered by renewable energy."  
 
Mr Chapman clarified the position of South Port in the event of a closure of  
the Smelter, which represents 33% of cargo volume at Bluff.  
 
However, South Port receives no wharfage revenue for raw material passing  
across the Tiwai Wharf (across the harbour from main port operations) and  
instead earns a fee fixed until 2043 for the wharf structure. While NZAS is  
an important customer, the overall contribution to South Port net profit  
(excluding the licence fee) is less than $2M.  
 
REPAIRS COST FACTOR FOR 2020  
 
South Port has signalled that the 2019-20 annual results will reflect  
increased expenditure on ageing port assets to ensure critical wharf and  
infrastructure remains 'fit for purpose'.  
 
"Although we have achieved good cargo and revenue growth, the repairs and  
maintenance burden has increased at a greater rate," said Rex Chapman.  
 
In the 2019 year, South Port set net profit ($9.79M, up 1%) and revenue  
records, bulk cargoes contributing 87% of all tonnage and log cargoes reached  
700,000 metric tonnes. Adding woodchip exports, forestry is now 31% of total  
bulk cargo volumes.  
 
Container transfers increased by 25% to 48,700 TEU, after both organic growth  
and a sizable lift in market share.  
 
South Port had set a 5-year target of 50,000 TEU as part of the business case  
supporting the purchase of a second mobile harbour crane in 2014. The  
Company is now close to achieving the throughput target.  
 
A key customer, Open Country Dairy is to construct a third dryer at Awarua,  
Southland that will be operational from the 2020-21 season. South Port is  
providing warehousing for Open Country's milk powder exports.  
 
Forestry exports are expected to reduce in the current year; log prices have  
reduced because of a fall in demand in India and China.  
 
Log prices tend to be cyclical and prices and volume are expected to improve,  
but the timeline is uncertain.  
 
Recent wet weather in Southland has negatively impacted on the import of bulk  
fertiliser.  
 
In an adjustment to the earlier forecast of an earnings reduction of around  
5%, the Company now expects earnings will be around 10% lower. However, the  
Company would seek to maintain the dividend level at the current 26 cents per  
share.  
 
Mr Chapman said that in 2019 South Port updated the 10-year Asset Management  
Plan and it includes below ground infrastructure. The Company now has a more  
robust plan which allows future costs to be forecast with more certainty.  
 
A greater allocation of financial and human capital will occur over the next  
three years, following which such expenditure will return to a more stable  
state.  
 
Mr Chapman said, "South Port recognises that social and environmental  
outcomes should be recorded and reported to shareholders and stakeholders,  
and the 2019 Annual Report includes commentary on social responsibility and  
the Company's first report on emissions will benchmark decisions taken to  
reduce them."  
 
Mr Chapman noted an exploration well will be drilled by OMV in the Great  
South Basin this summer.  
 
The expectation is that if there is a discovery, the geology suggests it is  
most likely to be gas, which can provide "important transition energy to  
achieving a low carbon economy."  
 
He notes that the Interim Climate Change Committee earlier this year advised  
the Government not to pursue a target for 100% renewable power 2035. They  
stated it would be too expensive and would deliver little emissions  
reduction. It instead urged the Government to accelerate its efforts to  
electrify transport and industry."  
 
Many major industries in Southland could convert to gas powered generation,  
which would result in significant reductions in carbon emissions. A gas find  
would also provide much needed certainty of supply "and make a positive  
contribution to achieving the Government's 2050 zero carbon target."  
 
FOR FURTHER INFORMATION PLEASE CONTACT:  
 
Mr Nigel Gear  
Chief Executive  
South Port New Zealand Ltd  
Tel (03) 212 8159  
 
Mr Warren Head  
Managing Director  
Head Consultants Ltd  
Tel 021 340 650  
End CA:00344026 For:SPN Type:MEETING Time:2019-11-08 11:00:09  

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