Council to buy $1.8m quarry business

Ruapehu Bulletin, Volume 13, Issue 630, 2 April 1996, Page 1

Council to buy $1.8m quarry business

By July the Ruapehu District Council could be in the quarrying business. Last Friday councillors appro ved the purchase of Byfords Quarry at Pukekou Road, Taumarunui, for $1.75 million. The main reason for the purchase is given as being to secure a supply of roading metal for the council' s own operation, although the quarry would continue to supply other users. Ruapehu mayor Weston Kirton said last Friday that.if the quarry were purchased by an outside firm, the council could face higher prices for its metal and given that the council is planning to increase metal applications on rural roads, it was important to have a reliable supply. Asked if they saw any public relations problems with the council owning another commercial enterprise, chief executive Cliff Houston said the quarry was an existing business so the competition for other suppliers was already there. "I see there being plenty of business for both Taumarunui quarries," said Mr Houston. Mr Kirton said there wOuld be no redundancies from the change of ownership and that in fact in future the company, to be known as Ruapehu Quarries Limited (RQL), could increase its production and that employment could increase. Mr Houston said the council would still buy metal from other sources, particularly in the south of the district. • The council is expecting the new company to make a profit, with Byfords' figures indicating a pre-tax profit "in the vicinity of $300-400,000 per annum. Byfords want out of the business as they "wished to concentrate on business operations in another area", said Mr Houston. Byfords preferred to sell to RDC but would look to other parties if no deal were possible. Mr Houston said profits from the company could be used to fund the Mainstreet programmes for the district. Turn to Page 2

Council to buy $1 .8m quarry

From Page 1 In his report to the council, Mr Houston said RCL spends approximately $700,000 pa on metal. "It is essential for RDC' s roading programme that the metal be supplied at competitive prices and there is a major concern as to what may happen if this quarry falls into the hands of another maj or works and construction company which is not yet established within the District." "The current proposal is seen as the one and only chance to secure a proven and long-term metal source of a straight forward operation and establish profitability." "A metal producing company within the group will also enable RCL to tender more competiti vely for construction contracts as it will have the advantage of local metal supplies at highly competitive rates," added Mr Houston. There were also opportunities to create stockpiles around the District to increase efficiency and reduce costs of RCL operations. These can be created using rail from the quarry

siding to Matiere, Ohura, Raetihi and Ohakune. The company could increase its output by taking on long term contracts for a number of potential customers includingTransrail, forestry companies and other councils. Byfords would continue to be a customer through its construction company. Mr Houston said further investigation was necessary before the sale was complete. "Negotiations to date have taken place on the basis of information provided by Byfords, quarry. returns from the Ministry of Commerce and independent valuations commissioned by RCL," stated Mr Houston. "I consider it essential that we also conduct a full investigation into Resource Management Act considerations to ensure that the value of the purchase is not caught by any hidden factors. I would also commission an independent firm of accountants to conduct a review of the quarry accounts to obtain confirmation that all is in order. Additionally I would have

any legal implications of the transactions examined by our legal advisers," concluded Mr Houston in his report. New company structure Along with the purchase of the quarry, the council is setting out to restructure its Local Authority Trading Enterprise (LATE). A new company is to be formed, Ruapehu Holdings Limited (RHL) which would purchase the quarry "for reasons of good governance and total group finances". Ruapehu Construction Limited (RCL) would be a wholly owned subsidiary of RHL. Mr Houston said the council has been reviewing the governance of RCL and that there were already plans afoot to set up such a structure. He said the quarry opportunity has brought this governance matter to the fore. RHL will have a board of four directors, with councillor John Compton and Mr Houston representing the council. "I consider that it would be appropriate for myself as RDC chief executive to

be appointed to the board of RHL as the role of a holding company is to closely monitor the performance of its subsidiaries," writes Mr Houston. "As all these subsidiaries are effectively Council assets this position would sit well with my general responsibilities." In his report, Mr Houston stated that it was not envisaged that RQL would employ any staff of its own as the chief executive of RCL would also be chief executive of that company and all labour and operational support required for the quarry would be provided by RCL under a service level contract. "This scenario would allow quarry staff to be deployed to other RCL operations during any quarry down-time, thus maximising use of the labour resource." A special consultative

procedure will be required to transfer RCL to RHL which allows for public submissions on the proposal. Share shuffle To facilitate the restructure two loans are to be raised. The first, for $1.8 millions, is for RHL to purchase the quarry. The second is for the raising of a loan to increase the share capital of RHL so that it can purchase the council' s interest in RCL. This loan would be for $2.6 — $3 million. "The value of the second loan will be returned to Council by RHL as consideration for the purchase of shares in RCL and will be used to retire other (council) debt," said Mr Houston. Mr Houston said there would be significant tax advantages through the restructuring and loan process.