Solid Energy losses mount with another $110m in write-downs

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Solid Energy posted its third annual loss in a row as the financially distressed state-owned coal miner wrote down the value of its export operations amid lower coal price assumptions, and warned of more red ink to come.

The Christchurch-based state-owned enterprise reported a loss of $181.9 million in the 12 months ended June 30, compared to a loss of $335.4 million a year earlier, it said in its annual report tabled in Parliament today. The company's board doesn't anticipate it will return to profitability until the 2017 financial year, based on its current projections.

The SOE had a gross loss of $25.6 million as revenue sank 29 percent to $449.1 million, outpacing a 20 percent drop in the cost of sales to $474.8 million. Solid Energy took a $110.6 million impairment charge, largely due to the write down in the value of its export operations.

"The priority of reshaping the company to withstand a challenging economic environment resulted in substantial cost reductions and simplification in the company's operations," chief executive Dan Clifford said in his report. "A successful operational performance against plan has assisted us to maintain market relevance and a long-term ability to supply current and expected customer demand."

A restructuring of Solid Energy was announced last October, coinciding with the publication of the annual reports, after collapsing coking coal prices on world markets exposed the company's over-commitment to a range of development initiatives, including development of options to turn lignite coal into diesel and urea, and renewable energy products such as pellets for wood burners.

Last month, Solid Energy received an extension of its $103 million remediation indemnity with the Crown to reimburse the cost of rehabilitation expenses of the company, Pike River (2012) and Spring Creek Mining Co.

Chair Pip Dunphy said the company had a tough year "compounded by continued weakness in coal prices and strength in the NZ dollar exchange rate," and is forecasting a gradual improvement in coal prices, with a budget of NZ$153/tonne for 2015.

The board signed off on the financial statements as a going concern, while noting that's based on a recovery in coking coal prices and that there's a near-term risk that doesn't happen or the kiwi dollar remains stronger than anticipated.

The accounts were tagged by auditor KPMG, which said there is "material uncertainty relating to the level of future coal prices, exchange rates and operating costs that will determine the group's ability to generate sufficient cash flows to operate within the group financing arrangements or for any repayment or refinancing requirements at the maturity of the group financing arrangements."

The auditor also noted the assumptions used in projections for export operations were sensitive to the same issues.

Solid Energy cut permanent and fixed-term staff numbers to 862 by the end of the 2014 year from 1029 a year earlier, having already stripped out more than 600 jobs in 2013.

The company generated an operational cash inflow of $7.5 million in the 2014 year compared to an outflow of $49.8 million in 2013, and had cash and equivalents of $71.7 million as at June 30.