Bottom dropped out of coal market, says Elder

APNZ

14 Mar, 2013 04:30 PM2 mins to read

Mr Palmer and former Solid Energy chief executive Don Elder made their highly anticipated appearance before Parliament's commerce committee this afternoon to answer questions about what led to the company's near collapse under $389 million in debt. Dr Elder told the packed committee room that the company's recent problems were down to a "perfect storm" of unprecedented coal price falls last year and the strong Kiwi dollar. He said it wasn't just New Zealand coal companies that were feeling the brunt of a drop in the price of coal, but US companies were also in serious trouble. He said the situation with Solid Energy needed to be looked at within an international context. Dr Elder offered an apology to workers on the West Coast who lost their jobs.

Former Solid Energy chief executive Don Elder says the main reason for the company's near failure was "a stunning blow" in the form of "an unprecedented collapse in coal prices".

In mid-2012 prices for the company's main export product, hard coking coal, "fell far below the range anyone around the world was forecasting" while the New Zealand dollar stayed high.

The combination saw the company receiving the same price for coal it got in 2004, in spite of it being three times deeper and four times more expensive to extract.

Even flagship mine Stockton was producing coal at a loss during the price trough last year, Dr Elder said.

"This was the perfect storm."

Former chairman John Palmer said that was coupled with "the fact that we were having problems at the Spring Creek mine that were costing the company $8 million a month in cash flow and that contributed to the debt level that we didn't expect".

The company faced a $300 million turnaround "way bigger than what anyone could have anticipated".

He downplayed the impact of alternative energy investments which had virtually all been paid for before the crash in coal prices.

Neither were the dividends paid to the Government in recent years a "material issue" in the company's current problems.