Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Solid Energy reports $40m loss on big writedowns

The pull-back from underground mining has been made in favour of lower-cost, open-cast operations. Photo / APN
The pull-back from underground mining has been made in favour of lower-cost, open-cast operations. Photo / APN

Asset writedowns took state-owned coal producer Solid Energy into a $40.2 million net loss for 2011-12 compared with a profit of $87.2m in the previous year.

Total asset impairments, net of tax, of $110.6 million were booked as at 30 June 2012, the company said.

Aside from asset writedowns, the company's underlying earnings came to $99.7m, up from $86.2m the year earlier, which chairman John Palmer said was a good performance in a deteriorating market.

Solid Energy, which was on the government's list for partial privatisation, has announced that it plans to reduce underground coal mining operations and exit renewable fuel production.

The company plans to wind back operations at Huntly East Underground Mine and is reviewing the future of Spring Creek Underground Mine.

The Nature's Flame wood pellet business has been set up as a standalone operation and the biodiesel business will be sold.

As a result, Solid Energy has written down the value of these and other assets.

"This result and the changes we are proposing to preserve the long-term value of the business clearly reflect the impact of the global economic downturn and the impact of worldwide commodity markets on the business," Palmer said in a statement.

Palmer said Solid Energy's underground mines have struggled for some time to be profitable as costs have escalated, while at the same time export coal prices have weakened.

The current carrying values of these mines cannot be justified based on projected earnings and have therefore been written down, he said.

"The harsh reality is that other fuels are far more competitive in the current financial environment," he said.

"We took a long-run view of these businesses which relied on a sustained price premium which has largely failed to materialise," he said.

Early this month, Solid Energy signalled that it was reviewing all aspects of its business in response to "extremely challenging" market conditions.

On Wednesday, the company said it would stop further capital investment in upgrading ventilation at Huntly East Mine in Waikato and working with a reduced mining team. This will see the mine's staff reduce from 234 positions to 171, while about 60 mainly contracting roles will go at the mine's ventilation upgrade project.

The company said it would also suspend operations at its Spring Creek Mine on the West Coast.

The Minister of Finance, Bill English, has said the state coal company's partial privatisation is on the back burner until its performance improves.

The company's result showed revenue of $978.4 million was up 18 per cent on the previous year (2011: $828.7 million), the second-highest annual revenue on record.

Coal sales were up 13 per cent to 4.6m tonnes (Mt) from 4.1 Mt, boosted by product stockpiled due to shipping delays at the Port of Lyttelton following the Canterbury earthquakes.

Coal exports of 2.4 Mt were up 20 per cent on the previous year, and New Zealand coal sales were up by 6 per cent at 2.2 Mt.

Prices ranged from a high of US$300/tonne for hard coking coal at the start of the financial year, to a low of US$206/tonne, then up to US$225 at the year's end.

The average US dollar price received in the first half of the year was up 31 per cent on the prior year, but softened to up 9 per cent overall for the full year.

Average New Zealand dollar prices were up 6 per cent for the full year, the company said.

- APNZ

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