Why is Solid Energy acting like an American coal robber baron from the 1920s?

The recent decisions by Solid Energy to put the Spring Creek coking coal mine on to care and maintenance and stop the development of the half sunk ventilation shaft at the East Side mine will have horrendous consequences for the West Coast and the Huntly regions. These regions are already hard hit, especially the Coast after the deaths of 29 Pike River men in a gas explosion on 19 November, 2010, and the loss of over 300 Pike jobs.

Coming with the decision to dismiss many other staff at its headquarters and elsewhere it looks like a panic restructuring brought on by crisis. State Owned Enterprises Minister Tony Ryall told Solid Energy unions on Tuesday that the company had debts of over $300 million. This was news to the men. He made this sound highly significant but in financial terms it is not. It may be that the debt accumulated without the Government being aware, but that is because of the remote, revenue-collector role they chose to play.

Solid Energy has made a hefty $614.3 million profit over the last 10 years, with $394 million in the last five years alone. Government has had its pound of flesh big time. Why then is this state-owned enterprise acting more like an American coal robber baron from the 1920s and despoiling whole communities?

Both Mr Ryall and Prime Minister John Key have taken up the refrain of Solid Energy's Don Elder that it's all because of the collapse in international coal prices, which are priced in US dollars. Apparently, Spring Creek can only get $120 per tonne now and its production costs are high, partly because it is going through a development phase into new reserves. So over 300 miners in an area of high unemployment are to be sacrificed and there is nothing the Government can do.


It is difficult not to share the anger of the miners who went to see Ryall at the Beehive because this is decidedly not the international view of coking coal prices. Kevin Crutchfield, the CEO of Alpha, one of the biggest coal mining companies in the US, has just said, on explaining why it is moving from power station coal to coking coal: "Globally there remains a structural undersupply of metallurgical coal and Alpha expects to see demand grow by more than 100 million tons by the end of the decade." This is long-term thinking, totally absent in the Solid Energy board.

Crutchfield and other coal industry analysts know that the demand for steel will pick up again in China as that country, India and Brazil move to a developed country per capita use of steel. They are only halfway there at the moment. Coking coal prices will then rise.

The key question for Solid Energy is how to get through production gaps, when developing new areas of coal is costly, as it always is in mining, through to the promised land. Do the Solid Energy board members understand this? There is not a single mining engineer on the board and the sole Australian minerals expert knows little about how to mine West Coast coals, I would guess. Elder, himself, is not a mining engineer.

So if coal prices are "volatile" rather than "fixed" what about production costs? Well, we have just seen an unprecedented co-operation between a workforce and local management to come up with a costed plan for transition, survival and future success. It has already been rejected, with Ryall admitting that he had not even read it; for that was a matter for the board. This is head-in-the-sand government.

And to hear Steven Joyce, the "ideas man" of the Government and a possible future PM, say that coal is one of the sunset industries they are not interested in is quite incredible. We have 11 billion tonnes of coal reserves and we should remember that oil and gas are by no means as plentiful. Coal was once the foundation of the chemical industry and will become so again as oil and gas deplete. Moreover, it will be processed in future in an environmentally acceptable manner. Once again, driven by its own insufficient oil supply and a growing dependency on oil imports, China is leading the way in this new revolution, but then it is doing so in renewables, too.

Let us then also consider the horrendous costs to the nation and the taxpayer should the non-miners on Solid Energy's board decide to shut a publicly owned company's key assets down - closing its two deep mines and refusing to develop Pike River, which it also owns. Pike had over 300 jobs and many of those miners remain unemployed. Spring Creek and East Side have over 300 miners, including contractors; so we have a thousand deep mining jobs at stake.

As the Europeans know from closing down their coal industries there are two jobs depending, in related industries, on every mining job.

I have calculated on the basis of the redundancy pay for Spring Creek miners and just 150 of the total workforce remaining unemployed for two years that the cost to the taxpayer -with the multiplier effect on other jobs - will be over $30 million. And here we are talking about the whole deep mine sector.

In the UK the mines started closing fast in 1986. Those 180 have now gone, but for a handful and the communities, 26 years on, remain devastated.

Just go and see for yourself, Mr Ryall.

Dave Feickert is a mining consultant who worked in the UK coal industry for 10 years. www.davefeickert.co.nz