The Czech government has warned creditors of New World Resources (NWR) that it is not prepared to step in to prevent the stricken coalmining group from being declared insolvent.

“There is no willingness [on the part of the government] to give money to the company,” Economy Minister Jan Mladek told bne IntelliNews in an interview on February 18. “They [the company] are pretending that they will be given some money. They are taking [our stance] as a kind of bluff – it isn’t a bluff.”

Mladek said instead it was up to bondholders of London-listed NWR – who he said were now calling the shots at the coal miner – to provide enough funds for it to continue as a going concern. Otherwise the government was prepared to let the company go into court-supervised reorganisation proceedings.

The Social Democrat minister said bondholders had proposed in December that they would inject more money if the government would commit €150mn, but he reiterated that the cabinet had not given him the mandate to reach this kind of deal. At the moment he was only negotiating with company management and their adviser, investment bank Moelis, over NWR’s plight.

He accused NWR management of trying to use the threat of large-scale redundancies in an area of high unemployment to blackmail it into giving help. “They are trying to motivate the miners against us,” he said, but pointed out that, unlike in neighbouring Poland, the government had made no pre-election promises to save coalmining.

NWR has said that it could run out of cash in the third quarter of this year unless coal prices dramatically recover. In its third quarter results it said it was realising selling prices of €92 and €51 a tonne for coking coal and thermal coal respectively, but its unit cost of production was €69 a tonne. It had a negative cash flow of €41mn.

It has threatened to close three of its five working OKD mines in depressed North Moravia (Paskov, Lazy and Darkov) and slash its workforce of more than 13,000 to 5,000. “This is a worst case scenario,” Mladek said.

The Social Democrat-led government has been battling with the owners of the struggling mining group ever since the party returned to government in 2014.  During its previous term of office in 2004 the Social Democrats sold off the state’s remaining stake in OKD for a price that has been criticised as suspiciously cheap.

New owners led by Czech financier Zdenek Bakala then floated holding company NWR in London in 2008 during a boom in coal prices.  He and his partners reportedly sucked out some €1.5bn from the group in dividends before the IPO, and made another €1.2bn from share sales in the flotation.

Most controversially, the owners are accused of reneging on an understanding that they would sell off OKD’s 43,000 flats to miners at a preferential rate. Instead they exploited rent deregulation to sell them last year to Blackstone Group for an undisclosed price.

When coal prices turned, Bakala and his partners injected €150mn into NWR as part of a debt restructuring in 2014, but the Swiss-based tycoon has now reportedly washed his hands of the company. “Bakala feels he has no [further] obligation,” said Mladek.

Through vehicle Cercle Mining Bakala and his partners still hold 50.2% of the company’s voting shares. However, Mladek said he had been told by bondholders – which include Gramercy, M&G Investments and Ashmore Group– that they have the right to convert their bonds into this equity. The bondholders already reportedly control the bulk of the 49.98% free float.

The bondholders already wrote off €325m of NWR’s debt and injected €35mn during the 2014 restructuring. NWR reported net debt of €321mn at the end of the third quarter.

Mladek said bondholders now had to realise that they had a choice between doing a further restructuring to save their investments or putting the company into insolvency proceedings; the government was not about to rescue the company.

“There seems to be some kind of misunderstanding,” he said. “Bankruptcy would make a lot of things easier.”

The government accepts that coalmining in North Moravia does not have a long-term future, he said, given that reserves are running out and the difficulty in extracting them, as well as the expectation that coal prices would stay low for the foreseeable future. “We do not want to keep artificial employment,” he said, “but at the same time we want to keep social peace.”

Mladek said the government was prepared to help with the social costs of any closures and redundancies, but it would be better if these were staggered over the next five to seven years.

“We will not save it for any price, but [any closure] should be smooth and not immediate,” he said.