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The bank stopped the money flow

The Board of Store Norske outside the headquarter. Chairwoman Annette Malm Justad and CEO Wenche Ravlo in front. FOTO: Eirik Palm

The bank stopped the money flow

The weekend before the solution at Store Norske was presented, DnB had halted its credit line to the coal company.

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The solution came in the eleventh hour. DnB is the bank contact for the crisis-hit coal company, which in turn is wholly dependent on credit. But the Friday beforehand was full of crisis. Svalbardposten has learned DnB decided to cut off that credit less than a week before the government presented its proposed remedy. Therefore, the company would in practice been bankrupt if the government had hesitated longer before reaching a solution.


Comfirmation

The incident shows has serious the crisis is for the cornerstone enterprise.

Several sources in key positions confirmed independently how serious the situation was the weekend before Trade, Industries and Fisheries Minster Monica Mæland (Conservative Party) convened a press conference to announce the government's decision to recommend 500 million kroner in assistance via a combination of loans and acquisition of Store Norke property. The company has, among other invoices, an overdue notice from Joy, a British supplier of mining equipment.

"We were very pleased that it has come into place, but it is clear that such things tend to involve difficult negotiations," said Annette Malm Justad, chairwoman of Store Norske's board of directors.

What about the credit cutoff the week before?

"We had working capital," said Justad, who on several occasions has stated the board was evaluating justifiable day-to-day operations. "No matter what the bank does or does not do, the board has a responsibility in that you cannot operate at the creditor's expense. That was just as much a responsibility of the board."

How many days could have passed before the board was forced to halt operations if a solution had not been found?

"If it was a day or two, or a week, I do not know," she said. "Now we have got it in place. It was an ongoing process."

"I understand, of course, that the bank must have collateral," said Wenche Ravlo, Store Norske's administrative director. "It had to have been solved or board would have said stop."


'Understanding Svalbard'

The coal company had, after writedowns, a record deficit of 2014 of 537 million kroner. The market has plummeted, coal prices have been low and the company has lost money with every single day has passed. In November, it became clear Store Norske needed emergency assistance to undertake a necessary restructuring.

Achieving that meant refinancing costs had to be cut, and after DnB and trade ministry officials met they presented Justad with an application for an emergency loan in January.

But after three months and the halting of Store Norske's line of credit, Svalbardposten has not been able to get a comment from the bank.

It is unclear to what extent the cutoff helped to speed up the negotiations, but Svalbardposten reported the following Monday the parties were in negotiations and a solution was imminent. The solution was prominently unveiled during the ministry's April 23 press conference.

"I understand that it has been difficult for everyone in Svalbard, but this case is about more than treating an application for a loan. We have been concerned about a solution that ensures continued operations," Mæland said.

She also said it was necessary to provide more money than the 450 million kroner the company was requested, 400 million of which was for continuing mining operations and 50 million for a subsidiary company branching into other industries. The government's 500-million-kroner recommendation, which appears likely to receive the necessary approval from Parliament, is solely for mining operations.


To be clarified later

The solution further states the government is the direct owner of Store Norske's land in Longyearbyen and Svea. These properties have until now belonged to the Store Norske Spitsbergen Kulkompani, which is 99.9 percent owned by the government, but it is unclear whether the agreement involves both land and buildings.

"We must come back to that," Justad said.

It is therefore not clear what practical consequences the arrangement will have, but Mæland said she will be submitting the matter to Parliament shortly.
It is also not clear what the distribution between the loan and funding from the acquisition of property is.

Furthermore, the challenges are not over since Store Norske must finding an addition 38 million kroner in savings. The company will also have to succeed processing targeted amounts of higher-quality coal in the Lunckefjell and find new markets that will pay higher prices than for lower-quality energy coal.

"In addition, we need some help from coal prices," Ravlo said.


Must succeed
Together, those factors form the basis of the decision to reopen the Lunckefjell mine after announcing earlier operations would be halted until next year. If unsuccessful, more will have to be let go at the mining company.

"We're going to start a substantial personnel reduction if a further entry does not happen,"said Ravlo, adding she has a number in mind but does not want to disclose it.
Nearly 100 of about 340 employees have been dismissed since November. In addition, the employees agreed to changes in their pension plan that provided a savings of about 300 million kroner as well as wage adjustments.

"I still think there is a good climate," said Arlid Olsen, the union steward for the miners. "Now we are down to the things each and every one can do something about. But people have stood fast. They have had good reason to be furious, but they have stood fast."

Translated by Mark Sabbatini

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