South Port 2019 Annual Meeting

SOUTH PORT NEW ZEALAND LIMITED

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.

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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.”

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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