As EDS chief Gary Taylor says, it "overturned 25 years of jurisprudence away from a balanced approach where you assessed a competing menu of issues in favour of an environmental bottom line" that included avoiding adverse effects on sites of outstanding natural landscape on the coast. At least two of the proposed new sites fall into that category, Taylor says.
Already, Guy's plan has been labelled "an arrogant captain's call," by the Green Party. "There is an obvious alternative option, and that is for King Salmon to simply reduce the number of fish and amount of feed that it uses on existing sites," environment spokesperson Eugenie Sage said. "The only reason this isn't the major option being considered by the minister is because it will cut into King Salmon's profits."
Investors were unfazed by the passing references in the prospectus to the potential changes underway. The product disclosure statement (PDS) has a paragraph in its growth strategy section that says the government and the Marlborough District Council are working together on the implementation of best practice guidelines for salmon farming in the Marlborough Sounds.
"A possible outcome of this could be a process to swap some existing low flow seafarm consents for waterspace with improved characteristics and at which compliance with best practice guidelines can be more easily achieved," the document says. Further back in the prospectus, in the risk section, King Salmon notes that its operations are subject to resource consents and other regulatory requirements that "may change from time to time".
"Community acceptance of our business is also important, as community groups and others could put pressure on central or local government to restrict our existing access to water if they oppose our operations," it said. "The likelihood of us losing access to our existing water sources is considered low, but if we did the impact could be severe depending on whether the loss affected all or only some of our facilities."
A third reference, under the heading Growth Opportunities Risk on page 73, says the three consents obtained in December 2014 would over time allow the company to double production but after that, it would need access to additional water. Such sites were "rare" and "difficult to obtain " It was in active discussions about its options including water space swaps. "If we are unable to secure new water sources, we may be unable to meet our longer term growth aspirations."
Was that enough to alert investors to the potentially big changes and challenges bearing down on the company including potential curbs on existing farms and earnings and a round of public consultation on an industry that has divided public opinion? The Financial Markets Authority says yes.
"The risk of losing existing water access is disclosed in the key information summary of the PDS and expanded in greater detail in the risk section on page 71," the FMA said in a emailed statement. "The directors express the view that the water space swaps could be a potential growth opportunity on page 38. On these grounds we have no reason to believe at this stage that the disclosure wasn't sufficient in the PDS."
King Salmon also says it provided adequate disclosure. But the disclosures don't make clear how advanced the plans were. Maps attached to the Cabinet paper from the Ministry for Primary Industries that show potential relocation sites are dated November 11 last year, just seven weeks after the prospectus was made public.
"It is material if they were to switch some of these sites into the Tory Channel," said Sam Trethewey, a portfolio manager at Milford Asset Management. "That's where the really lucrative locations are. Higher flows equal higher production." But in an IPO document it is "very hard" for a company to talk up anything beyond what is doable.
"The upside potential is significant for King Salmon if they can relocate farms but it is a difficult process. Market expectations are that it isn't going to be easy," he said. Milford looked at the offer but didn't participate. Those that did include the New Zealand Superannuation Fund, which picked up 6.4 per cent.
First NZ Capital, one of the lead managers for the IPO, rated King Salmon shares 'outperform' in a January 30 note to clients, saying relocating up to six farms would be expected "to achieve better sustainability, social and economic outcomes" and if all six went ahead or if the three new sites are approved it could add between $2.3m and $8.9m to pretax earnings.
It gave a price target of $1.49 and said a recent global short supply of Atlantic salmon had driven up prices in the past 12 months and "should also be supportive for King Salmon's prices".
For Guy, the relocation must look like a no-brainer use of his ministerial powers to amend the Marlborough Sounds Resource Management Plan via regulation. The move is consistent with the government's Business Growth Agenda to increase productivity of natural resources. It would allow the industry to grow and create jobs.
At the same time the benthic effects of salmon farming - which leads to the deposition of fish faeces and waste feed onto the seabed causing nutrient enrichment - would be reduced in deeper, faster-moving water. King Salmon actually hatched the idea in February 2015 and ministers directed the Ministry for Primary Industries and Ministry for the Environment to investigate the use or ministerial regulation-making powers to enhance the salmon farming industry in March of that year.
Public consultation ends on March 27, after which an advisory panel chaired by former Environment Court judge Peter Skelton will review expert research, analyse written comments and hold public hearings in April. The panel and government agencies will then provide advice to the minister.
