Solid's new financial crisis

NEW Zealand government-owned coal miner Solid Energy faces a tougher year ahead than 2008-09, its chairman says, after reporting a $NZ40.2 million ($A31.2 million) net loss for 2011-12.
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Solid Energy's Spring Creek underground mine.

Andy Graham

Underlying earnings were up 16% to $99.7 million but were more than offset by asset impairments and other write-downs totalling $139.9 million.

Coal sales and revenue both increased, by 13% to 4.6 million tonnes and by 18% to $978.4 million respectively.

Coal exports rose 20% to 2.4Mt.

The write-downs were mainly related to Solid’s Huntly East and Spring Creek underground mines, where it has announced it will wind down operations.

Solid chairman John Palmer said the underground mines had struggled to be profitable as costs had escalated, while at the same time export coal prices had weakened substantially.

“The current carrying values of these mines cannot be justified based on projected earnings and have therefore been written down,” he said.

Solid paid the government a $30 million dividend in September last year but Palmer said that given the volatility and continued weakness of international coal markets it had not declared a further dividend.

"Solid Energy's financial situation for the next period will continue to be challenging and is worse than during the 2008 global financial crisis,” Palmer said.

“In 2008-09 when US dollar export coal prices collapsed, the New Zealand dollar followed. Coal prices rebounded relatively quickly in the following year, whereas this time, with a high New Zealand dollar, we expect prices to be weak for a prolonged period.

"In addition, the company's investments over the last four years increased its debt by $250 million.”

Solid said it met some key milestones towards delivering its long-term growth strategy.

“The $22 million underground coal gasification pilot plant started producing syngas in April 2012 and the $29 million Mataura domestic-scale briquette plant is about to start production,” it said.

“In May 2012, the company proved coal seam gas technology at its Huntly demonstration plant, producing high-quality gas, converted to electricity onsite and exported into the national grid.

“The company is closing down the plant to focus its commercialisation efforts on the significantly larger Taranaki field.”

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