Marlborough Express - The Saturday Express, Marlborough
Approval for salmon farm expansion
NZ King Salmon Investments, whose fish are being killed by warmer waters, has been given approval by the Marlborough District Council to expand out into the cooler open ocean. But analysts say the project remains highly uncertain.
The salmon farmer announced last Friday that after six years it has been given the green light to begin farming New Zealand’s first open ocean finfish site, a project the company calls ‘Blue Endeavour’.
The Nelson-based company wants to set up an open ocean salmon farm in colder Cook Strait waters after being forced to fallow three of its warmer farms in Pelorus Sound as rising sea temperatures killed significant numbers of its fish.
NZ King Salmon has had ‘‘a very challenging time’’, said Nelson MP Rachel Boyack, who said she was ‘‘very pleased’’ with the decision.
‘‘We employ a lot of people in this industry in Nelson and it gives the industry some certainty,’’ she said.
The company was a huge operation for Nelson’s aquaculture sector, and it was important for the region that it did well, she said.
But analysts who follow the company said they remained cautious about the project.
In a note published on Monday, Forsyth Barr analysts Margaret Bei and Andy Bowley said there was significant uncertainty surrounding the success of the project, which remained ‘‘highly uncertain’’.
The company has previously flagged that harvesting in the open ocean site wouldn’t occur until at least the 2027 financial year.
The project’s approval did not rule out objections which could cause further delays, anticipated investment returns may have weakened as infrastructure costs were likely to have increased significantly since the project was last scoped, funding for the project would likely require the company to raise additional capital, and positive outcomes for fish health were not certain, the analysts said.
Forsyth Barr increased its target price for the company’s shares to 24 cents from 23c, noting 22c of the value related to the core business, and 2c for the option value for the Blue Endeavour project.
The approval appeared to provide NZ King Salmon with more flexibility than anticipated as it removed a key requirement to stage the rollout of the farms across multiple years, the analysts said.
Other key conditions appeared generally unchanged for the project, which was for two six-hectare pens 5km north of Cape Lambert in the Marlborough Sounds.
Shares in NZ King Salmon were down 1.9% to 26c in midafternoon trading on the NZX on Monday, having earlier touched a high of 30c.
‘‘NZK’s current share price indicates substantial optimism about the project’s outcomes, but we remain cautious as there are a number of significant headwinds that still need to be addressed,’’ the analysts said.
Forsyth Barr estimates the project could cost between $150 million to $200m.
Jarden analyst Christian Bell noted the company had previously flagged costs of about $100m for one farm, or about $170m for two farms, although the costs were likely higher now due to inflation.
Bell said he had made no changes to his forecasts following the announcements as the company was yet to provide significant detail around next steps, and there was little detail on the potential economics from farming Blue Endeavour.
NZ King Salmon reported a $24.5m loss in the first half of its current financial year to July 31. Last financial year it reported a $73m loss, after writing down the value of its assets by $59m and changing its farming practices to cut back on the use of its warmer sites over summer.
The fish deaths put NZ King Salmon under some financial pressure last year – its debt ballooned, and it breached its banking covenants with its lender BNZ. The bank agreed to a temporary waiver so long as NZ King Salmon raised at least $50m of new equity, after any transaction costs. The company sold $60m of shares at a discount, about $43m of which went to repay its debt.
The company’s chief executive Grant Rosewarne resigned at the start of this month with immediate effect, having been in the role since 2009.
With additional reporting by Katie Townshend