Miner well-placed for selldown

Solid Energy plans to keep three of the Huntly East's 68 staff on. Photo / NZPA

Liabilities minimised before planned sale of assets, says Solid Energy chief executive.

Solid Energy is in a stronger position than an Australian coal miner that was sold for A$1 in December, because the failed company has minimised its liabilities ahead of the planned sale of assets, says chief executive Dan Clifford.

He was responding to a question from Green MP Gareth Hughes at the commerce select committee on whether there was any value left in its coal mines, or whether they would change hands for almost nothing.

Junior Australian miner Stanmore Coal reportedly bought control for A$1 of the 1.1 million tonne Isaac Plains coking coal operation in central Queensland after Brazil's Vale and Japan's Sumitomo mothballed the colliery in 2014. Stanmore also took on all existing contractual obligations.

"Sure there are assets that may be at a headline position changing hands for a dollar but they also have substantial liabilities attached to those sites," Clifford told the committee. Liabilities could be $30 million to $50 million and include the costs of environmental cleanup and being locked into take or pay contracts five-to-10 years out.

By contrast, Solid Energy's take or pay commitments are minimal and its site rehabilitation obligations are underpinned by indemnities, he said.

The state-owned coal miner owed about $414 million to unsecured creditors as at Sept. 17, while secured creditors were owed about $58 million and priority creditors $5.7 million, according to a KordaMentha report. Creditors agreed to return control of the company to its board and management for an orderly sale of assets after Solid Energy was placed in administration last August.

Today, the company said it will make a decision on the Stockton mine, which produces coking coal for export, before June. Stockton is still unprofitable despite big efforts to put the West Coast facility on a stronger footing and no decision has been made yet whether it can be sold or will be closed down.

"We've been putting a helluva lot of time into Stockton, refining its operating structure to make it as efficient as possible and ideally as near to cash neutral as possible," chairman Andy Coupe said. "If someone is prepared to take a longer-term view then we may well be surprised. It's still losing money and will continue to, probably by a very small amount. It may be that people say it is too small, too remote."

Solid Energy has taken almost $400 million of impairments over the past two years after an ambitious expansion plan was thwarted by slumping global coal prices. The Crown's equity is now effectively gone, with its banks at the front of the queue of creditors, having already agreed to restructure and forgo some of the debt.

Coupe called it "one of the most complex processes in New Zealand corporate history." All its land, mines and other assets are up for sale and it expects to be able to advise on progress "in the latter part of the June quarter."

"By the end of the calendar year we will know whether, substantially, the assets will be able to be sold or not," he said.

Solid Energy is being offered either as a whole or in three parts. Stockton is the most difficult sell. But the other two businesses - North Island domestic and South Island domestic may have better prospects. North Island output is underpinned by demand from the New Zealand Steel business and three or four big dairy factories that aren't on gas, and production is based on a mature mine. Output from the unprofitable Huntly East mine has been substantially wound down.

Its South Island business benefit from the lack of reticulated gas and the fact that new dairy factories are being built that need coal, adding to existing customers such as Fonterra Cooperative Group's Edendale site.

Under the Deed of Company Arrangement agreed last year, Solid Energy's banks can expect to get back between 35 cents and 40 cents in the dollar when the insolvent state-owned coal miner is wound up and its saleable assets disposed of in a plan expected to take two and a half years. The banks and other creditors opted for an orderly selldown over a liquidation, which KordaMentha had estimated would likely yield between 15 cents and 20 cents in the dollar.

The company was placed in voluntary administration last year after concluding that it had no realistic prospect of refinancing $239 million of debt facilities.

The Numbers:
• $414 million owed to unsecured creditors as at September 17
• $58 million owed to secured creditors and $5.7 million to priority creditors
• $400 million of impairments over the past two years after an ambitious expansion plan was thwarted by slumping global coal prices