International prices for specialist high-grade hard coking coal have plunged more than 40% from $US300 ($NZ371) per tonne last year to below $US200 per tonne, the lowest price in several years, further compounded by the high New Zealand dollar.
Solid Energy chief executiveDr Don Elder said the industry consensus was that "the market bottom remains some way off" and forewarned there would be "operational and structural changes" following completion of the review.
"While many in the industry still expect demand, driven by Asia, to pick up again strongly sometime in 2013, Solid Energy needs to plan to withstand these market conditions for at least the next 12 months, and possibly for 24 months or longer," he said in a statement yesterday.
Solid Energy's decision mirrors Australian job losses during the past month in some mines of Rio Tinto, Xstrata Coal, BHP Billiton, Ensham Resources, and Peabody Energy.
Solid Energy is one of four companies the Government plans to partially sell off.
While a major restructuring exercise could make it more attractive to buyers, it also highlights to the small investors which the Government is targeting just how much risk there is being involved in the volatile global commodities market.
Dr Elder said the steep fall in demand and low prices for internationally traded coal meant Solid Energy anticipated its revenues would fall about $200 million in the current financial year.
"Solid Energy is reviewing all aspects of its business in response to extremely challenging market conditions," Dr Elder said, saying he expected to update the market before the end of the month.
Craigs Investment Partners broker Peter McIntyre said the magnitude of the revenue slump was a "shock" for the market, but with declining global coal prices there were expectations of a downgrade being due.
"This highlights the volatility in the hard-coking coal market and its reliance on China," Mr McIntyre said.
The review covers all business areas, including current and future operations, all fixed and variable costs, and asset values.
The latter which would result in Solid Energy taking "significant impairments", Dr Elder said.
"Our aim is to preserve cash through reduced spending while, as far as possible, maintaining our longer-term value opportunities," he said.
Unlike conditions during the global financial crisis, when the strength of the New Zealand dollar plunged alongside coal prices and cushioned declines, at present there was no certainty about when international growth would resume and lift international coal demand and prices, he said.
Solid Energy last month finalised the purchase for $7.5 million of the Pike River mine, where 29 men died in underground explosions in November 2010.
Aside from more than four million tonnes of coal production annually, Solid Energy is leading the way in exploring diversification of energy production.
That includes the contentious use of low-quality lignite, which Otago and Southland has in abundance. Construction is nearing completion of a boutique $29 million pilot lignite briquetting plant near Mataura.
Solid Energy has also begun converting used cooking oil into biodiesel.
In April, Solid Energy started up its $22 million underground coal gasification pilot plant near Huntly, Waikato, producing synthetic gas from coal.
At a glance
Last financial year Almost 1500 staff.
• 4 million tonnes of coal mined.
• Coal sales about 50:50 export/domestic.
• Company revenue $829 million.
• After-tax profit $87.2 million.
• $20 million dividend paid to Government.
• Assets $1.13 billion.
• Total debt $222 million.
• Wood pellet production up 53% to 46,000 tonnes.
• Biodiesel production up 34% to 1.8 million litres.
