Solid Energy not ready for sell-off

Problem-plagued Solid Energy appears even further away from any partial sell-off by the Government after write-down and impairments charges of $140 million against assets prompted a $40 million after-tax loss for its year's trading to June.

A fortnight ago, state-owned enterprise Solid Energy signalled the likelihood of a $200 million revenue slump because of declining global prices then announced on Thursday almost 400 jobs, on the West Coast and in the Waikato, are under threat as expensive underground mines are scaled back or being considered for closure.

Solid Energy's financial position was worse than during the 2008 global financial crisis because of the continued strength of the New Zealand dollar, outgoing chairman John Palmer said in a statement yesterday.

Solid Energy's diverse investments during the past four years, some of which are now being criticised, had increased debt by $250 million.

Chief executive Dr Don Elder highlighted increased revenue and coal sales, plus the rise in underlying earnings - from $86.2 million to $99.7 million (before the writedowns) - as a good result for the company in difficult times.

Solid Energy coal sales increased 13% to the highest total in five years at 4.6 million tonnes, revenue was up 18% at $978.4 million and cash flows up 10% at $142.2 million.

However, the write-down of assets and impairments totalling $141 million resulted in a $40.2 million after-tax loss for the year, compared with a $87.2 million profit a year ago.

Dr Elder said it was known a decade ago that New Zealand's easily accessible coal was "gone" and Solid Energy had subsequently looked at about 100 different coal technologies, which had been whittled down to bio-fuels, wood pellets, lignite conversion and coal gasification developments.

Labour West Coast MP Damien O'Connor, spokesman for Primary Industries, Biosecurity and Food Safety, rounded on Solid Energy in a separate statement, saying it had wasted "millions of dollars" on a "failing biofuels business ... it knew little about".

Dr Elder said Solid Energy's wood pellet subsidiary would be retained for a year, in a "cash-neutral position", while it would sell the biofuels arm.

He said the immediate future for Solid Energy was its open-pit mines, all of which had "outperformed" during the financial year, conversion of lignite to briquettes and fertiliser and underground coal gasification developments (the latter not being coal-seam gas extraction).

Mr Palmer said the underground mines - Spring Creek near Greymouth and Huntly East - had struggled for some time to be profitable as development and production costs escalated, while export coal prices had "weakened substantially" during that period.

"The current carrying values of these mines cannot be justified based on projected earnings and have therefore been written down," Mr Palmer said.

The combination of the financial result and proposed changes reflected the impact of the global economic downturn and decline of worldwide commodity markets, Mr Palmer said.

• Mr Palmer, who announced his retirement from the board earlier, will be replaced as chairman by Auckland-based Mark Ford next week.


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