21 Feb 2013

More cuts possible as Solid Energy seeks support

10:39 pm on 21 February 2013

The Government is warning closures and further job losses at Solid Energy may be unavoidable as New Zealand's biggest coal miner struggles with a deepening debt crisis.

The state-owned company has suffered from a significant drop in world coal prices, culminating last year in the mothballing of Spring Creek mine on the West Coast and 544 redundancies nationwide in an effort to reduce costs.

Solid Energy's debt stands at $389 million and the miner issued a profit warning on Thursday, saying its half-year result due out soon would show another significant loss.

The company said it is in talks with bankers and the Treasury after admitting that its finances have continued to deteriorate.

The Government confirmed on Thursday Solid Energy's position is sufficiently bad that banks owed money have asked the Government for assurances they will be repaid.

Mr English told reporters he won't rule out the possibility of mine closures and job losses or a bailout for the company. He said the Government would not let it go into receivership.

"There is a viable core business there, but the company would have to be structured differently to make it work. For instance, if you compare it with other companies with some similarities they've a lot less overheads than Solid Energy does."

The minister told Radio New Zealand's Checkpoint programme the company has been hit hard by world coal prices dropping 40% lower than expected and other factors.

Mr English said the company has sufficient cash to pay its 1200 employees and suppliers for at least the next two to three months.

"Jobs are a concern - that's why we want to work through to clarifying a stable, viable ongoing Solid Energy. And our best guarantee of jobs is a viable, stable company - and at the moment, that's not the case."

Despite restructuring to cope with the global downturn, Solid Energy chairman Mark Ford said on Thursday further cuts may be needed for what he described as "a difficult and challenging period".

Mr Ford said Solid Energy is talking with banks and the Treasury on debt and equity support, which it requires for future business operations, and its new board is preparing a plan that would help reverse its deteriorating fortunes.

The company said although there has been modest recovery in international coal prices, it expects any sustained recovery would be prolonged.

On 4 February this year, chief executive Don Elder announced his resignation after nearly 13 years at the helm.

Govt urged to step in and save jobs

Mayors from coal mining communities likely to be affected by Solid Energy's financial problems and a union representing miners are calling on the Government to help.

The Engineering, Printing and Manufacturing Union said members are upset at news the company is in trouble. Mining spokesperson Ged O'Connell told Checkpoint on Thursday the Government has a particular responsibility to do everything it can to protect jobs as the company's owner.

"It wouldn't be inappropriate at all for the Government to step in, finance it through the difficult time.

"We're quite sure that the coal's there, the ability to get it out's there - it's just really a matter of getting those dreadful financial decisions that were taken in the last year or two out of the way and get on with the business of mining coal."

Mr O'Connell said Solid Energy will need its 600 remaining miners to continue extracting coal and make money.

Grey District mayor Tony Kokshoorn from the West Coast said the Government must put money into the company to minimise job losses. He said world coal prices are improving and is confident that the company's fortunes will turn around.

"It will come right - but it needs Government assistance and an injection of cash - and I say that company will be back to its $1.7 billion worth in a couple of years again."

Waikato District mayor Allan Sanson said news of Solid Energy's problems will make his community very unsettled but hoped the company's existing local markets would keep demand for Huntly coal high.