Prime Minister John Key said from the Government's point of view it would be good to see Solid Energy's Spring Creek mine stay operational and the Government was pleased the company was taking time to consider the future.
Solid Energy announced key decisions yesterday, including a pull-back from underground mining in favour of lower-cost, open-cast operations, with the Huntly East mine to operate on a reduced schedule and the Spring Creek mine north of Greymouth closing immediately for a review of its operations.
Key said it was solely an issue around the price of coal and the speed at which it could be extracted raising questions about whether it was economical.
He said state-owned coal company Solid Energy had had an "optimistic view" about coal prices for some time while the Government was based on international consensus that coal prices were likely to track lower. He said there was some volatility in all commodities.
"It's good news that they are taking the decision to hold their breath for a moment and consider all of the options available, so there's no guarantee that they won't re-open the mine."
He said it was a very significant resource which employed a large number of people and was important on the West Coast, but it was a hard workforce to maintain because of the demand for those workers from Australia.
"In the end Solid Energy has the right to make their own decisions but they've got a new incoming chairman and it's for him to work with the Chief Executive to work out what happens next."
Solid Energy announced it will cut about 200 jobs, close its Stockton underground mine on the West Coast, and reduce operations at its Huntly East mine after a downturn in demand from major industrial customers.
The company will also cancel $100 million of capital expenditure for this financial year as it grapples with a steep fall in international coal prices and an anticipated cut in annual revenues of around $200 million.
It will also close its uneconomic bio-diesel plant, but will carry on with controversial plans to exploit vast deposits of low-quality lignite coal in Southland for briquettes and possible conversion to transport fuels and fertiliser.
While it will pull back from underground mining, Solid Energy will commit new resources to underground coal gasification (UCG) projects, but will shift its focus from Huntly to its UCG prospects in Taranaki.
Opencast mining at the Stockton mine, on the plateau above Westport, will be "optimised to generate additional cash".
Revenues in the financial year to June 2011 totalled $829 million, as global coal prices peaked, up from $690 million in the year to June 2010.
Solid Energy will release its results for the year to June 30, 2012, this Friday, but had signalled it would inform staff yesterday about job cuts to address its declining performance.
The Minister of Finance, Bill English, has said the state coal company's partial privatisation is on the back burner until its performance improves.
While Solid Energy faced a similar plunge in coal prices and demand in 2008, during the global financial crisis, the difference now is that the New Zealand dollar has stayed persistently strong, whereas it fell in line with global market conditions four years ago, said chief executive Don Elder.
"While many in the industry still expect demand, driven by Asia, to pick up again strongly some time after 2013, Solid Energy believes it needs to plan to withstand these market conditions for at least the next 12 months and possibly for 24 months or longer," Elder said.
Spring Creek had "struggled to be profitable for some time" while Huntly East needed firmer orders from major North Island customers to justify longer term development.
Seventy-five jobs will go from the state-owned energy company's coal operations, including 63 from Huntly East Mine, while 65 jobs will be lost in "non-operational" areas, mostly from Solid Energy's head office in Christchurch.
A ventilation upgrade at the Huntly East mine will cease, resulting in the loss of about 60 contracting jobs, although a company spokeswoman said some of these workers may be redeployed to other positions.
A consultation period with staff will run to late September, when final decisions will be confirmed.
While the Nature's Flame woodburner pellets business would continue to operate on a standalone basis, the company would sell or close its bio-diesel operation as the loss of government subsidies now made it uneconomic.
The company's other opencast mines at Rotowaro and Reddale, and New Vale will continue operations.
On lignite, Elder said the company would go ahead with full commissioning of its briquette plant in Mataura in October, and would complete the first stage of a feasibility study into converting lignite to urea for fertiliser.
"This work includes examining technology options and capital costs for the plant," Elder said.
"Decisions about the plant and mine locations are not expected before the end of 2012."
The lignite announcement coincides with the release yesterday of a report by the economic consultancy BERL for the environmental lobby group WWF-New Zealand, suggesting Southland could grow its economy in other sectors, which had a lower carbon footprint.
- with BUSINESSDESK