The DOCA envisages all obligations to staff and trade creditors being paid in full, while rehabilitation costs at mine sites are covered by an indemnity negotiated last year with the government, with a cap minimising risk to local councils.
The company was placed in voluntary administration last month after concluding that it had no realistic prospect of refinancing $239 million of debt facilities that are due to mature in September next year. The company's downward spiral began in 2013 when slumping global coal costs exposed its commercial error in carrying substantial debt on its balance sheet to pursue a variety of novel energy projects that a previous board and management believed would give the business a future beyond coal extraction.
Figures released in the report from Korda Mentha today show the company is insolvent, with $95 million in negative equity on its balance sheet at June 30, compared with positive equity of $12.5 million on its books in June last year.
That compared with equity on the balance sheet of $423 million in June 2012, before the depth of the company's difficulties and a string of major losses were revealed. By June 2013, equity had fallen to $92 million prior to a debt restructuring in 2013 and the extension of the rehabilitation commitment last year.
The report details how Solid Energy has reacted to falling export coal prices by cutting production at the Stockton mine on the South Island's West Coast to the minimum output required to service existing customers, at 925,000 tonnes a year, compared with 1.8 million tonnes in the 2014 financial year, and has cut its workforce at the site from 800 to 246.
National headcount has fallen to 524, compared to 1,658 in June 2012.
A summary of the company's current financial position also shows that the value of its realisable assets has fallen to $298.7 million from $576 million between June 2014 and June 2015.
The report paints a bleak picture not only for Solid Energy but the mining sector globally, noting three large bankruptcies involving US mining companies this year, an "all-time low freight market", significant cost reductions by competitors in Australia, and policies in China aimed at supporting its domestic coal industry.
In the local market, Solid's three largest North Island customers have been Genesis Energy, New Zealand Steel and Fonterra. However, Genesis triggered a contract cancellation when Solid Energy went into voluntary administration, while NZ Steel is exercising a right to renegotiate its contract and can import coal if it chooses.
In the South Island, Solid supplies to a variety of users, where natural gas is not available as an alternative fuel, but the coal market is fragmented. The dairy industry constitutes about half of total demand in the South Island.
The report estimates contingent liabilities for staff redundancies at some $20.1 million and contingent liabilities to contractual counterparties "in the region of $145 million", while contingent liabilities on leased equipment is about $16 million.
The staged selldown would ensure there was not a flood of heavy machinery onto the market at once.
Acting Solid Energy chairman Andy Coupe welcomed the support being expressed for the DOCA.
"Solid Energy management and the board have been working tirelessly to further this proposal," he said in a statement. "We are pleased at the support we have received in negotiating our proposal."
