The under-performing Spring Creek underground coalmine at Dunollie was a major contributor to Solid Energy's dramatic fall from grace, according to the Auditor-General.
Solid Energy mothballed the mine, with the loss of 230 jobs, in October 2012 but an Auditor-General investigation has revealed that the State-owned coal producer had considered putting the mine into care and maintenance much earlier than that.
A report from that investigation, explaining how the company ended up in such trouble, was presented to Parliament's commerce select committee yesterday.
It includes a report on Spring Creek to the Solid Energy board in 2009, which noted the high development costs, delayed extraction of coal, less extraction than planned in some panels and that the board had queried health and safety risks at the mine.
Spring Creek was reliant on support from shareholders to operate and was a big influence on Solid Energy's debt in 2011-12 and 2012-13. Until February 2012, Spring Creek Mine assets were shared between Solid Energy (51 per cent) and Cargill International SA (49 per cent).
Solid Energy had considered placing the mine into care and maintenance as soon as it bought out Cargill, but deferred that decision until October 2012, despite the mine operating at a loss, which had a detrimental financial impact on the business.
"There was a delay in decision-making around the future operation of Spring Creek Mine and the continued operation of the mine had a detrimental effect on Solid Energy's debt levels," the report said.
"The investment decisions made by the board and management, and the delay in decision-making in respect of Spring Creek, resulted in a company that was not resilient to the substantial and sharp drop in international coal prices."
The Auditor-General said the company's decision to invest $128 million in the coal handling and processing plant at Stockton open-cast mine in Buller was justified, but the investment in a Taupo wood pellet plant was outside its core business and involved significant capital expenditure.
"In the case of the Taupo wood pellet plant, the assessment did not recognise some key risks.
"For example, Solid Energy did not fully understand the complexities and risks associated with developing new or emerging markets with relatively new products. Solid Energy's forecasts were too optimistic and did not adequately consider a downside scenario."
- The Greymouth Star