31 Aug 2012

Solid Energy posts $40m loss

11:23 pm on 31 August 2012

State-owned coal miner Solid Energy says low prices which has led it to cut jobs and suspend some mining operations could last as long as two years.

The company on Friday reported a $40.2 million loss in the year to June after writing down the value of a number of its assets. The previous year it made an $87.2 million profit.

This week, Solid Energy announced job cuts at its East Huntly coal mine and head office and is suspending operations at the Spring Creek mine on the West Coast. It has also exited unprofitable businesses to combat plunging global coal prices.

Like miners around the world, the firm is struggling with the downturn in demand from China and is responding by severely scaling back its operations to remain viable.

Excluding writedowns and other one-off items, Solid Energy's underlying profit rose 16% to nearly $100 million in the year to June, which the company says is a good result in a deteriorating market.

Sales rose 18% to $978 billion - the second highest ever - but it masks the sharp fall in coal prices in the second half of the year, while a persistently high dollar New Zealand dollar hit returns.

Solid Energy chairman John Palmer says the high dollar means the effects on the company's revenues from the recent collapse in coal prices is much worse than during the global financial crisis in 2008.

"Our view is that in the current financial year FY13 and possibly into FY14, the prospects for that business are worse than they were in 2008. We cannot ignore that fact."

The company will not pay a dividend to its owner, the Government, citing the continued weakness of global coal markets.

Meanwhile, Solid Energy has announced former Auckland Watercare boss Mark Ford is to become its new chair, replacing John Palmer who is retiring from the board. In June, Mr Ford was appointed to lead the rebuild of Christchurch's infrastructure following damaging earthquakes.

Days of easy mining over, boss admits

Solid Energy chief executive Don Elder says the company's priority is to maintain existing assets so it can resume normal operations if and when international prices recover, but warns the days of easy coal mining are over.

Mr Elder told Radio New Zealand' Checkpoint programme on Friday if new ways are not found to extract value from the country's vast coal resources, it will stay in the ground forever.

However, he says the company is not walking away from the industry.

"There's no easy coal in New Zealand. That doesn't mean you walk away from it, it means you work very, very hard to find ways in which you can extract the value from coal.

"It's very good quality - but in our geography and geology in New Zealand as we've all seen far too well it can be very difficult to mine. You need to work very hard and find the right solutions."

Biofuels 'badly managed and big mistake'

Solid Energy admits that starting biofuel businesses was a costly mistake.

As part of changes affecting more than 500 workers, the company is looking to sell or exit from its subsidiaries Biodiesel New Zealand and wood pellet maker Nature's Flame.

Solid Energy is going back to coal after spending almost $100 million becoming the country's largest renewable fuel supplier.

Outgoing chair John Palmer says the biofuel business was a mistake, badly managed and built on optimistic assumptions.

Mr Palmer says the company's Taupo wood pellet plant is world-class, but has never made any money and would have been more valuable if mothballed when commissioned.

The Rapeseed Growers Group says Solid Energy has made many errors, but is getting out just as the biofuel crop is becoming economically viable.