'There's a lot of coal at Stockton, maybe 20 years'

BRIGHT FUTURE: Don Elder says that under the company's plan it was now moderately confident that Stockton had a life out to 15 years, and "very possibly beyond 20 years".

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Solid Energy chief executive Don Elder says its Stockton mine which was expected to produce coal for 3-5 years when he first became boss, now "very possibly" had a 20 year-plus extended lifetime.

Elder said the state-owned coalminer was confident about its future and that of its mines including Stockton, near Westport.

Last week he was quoted as saying he was supposed to wind the company up from the time he was hired in May 2000.

"I was hired, basically, to close the company down," Elder reportedly told a breakfast meeting in Westport, "It was a three-year job".

Yesterday Elder said he had perhaps overstated the intention 10 years ago to close the company, and now the future looked significantly brighter.

"There is a lot of coal left at Stockton, more than 20 years worth in the future. But [some of] it is in new pits or blocks that are either lower quality or much deeper or much more difficult to mine, and under historical prices wouldn't have been economic.

"But the new price regime that applies in the world, with rising energy and rising commodity prices ... even some of those harder blocks look economic provided that we can mine them efficiently and safely."

Under the company's plan it was now moderately confident that Stockton had a life out to 15 years, and "very possibly beyond 20 years but that is still very much in the future."

The latest thinking by Solid Energy on the annual benchmark for export hard coking coal prices for 2010-2011 was around US$180 (NZ$261) to US$200 a tonne. There had been a move by market leader BHP Billiton to change the annual benchmark to quarterly benchmarking, he noted.

Elder said back in mid-2000 within a couple of months of beginning his job as chief executive it had become clear there was a future for the state-owned coalminer.

"I wasn't employed to close the company down, I was employed at a time when the company had a business plan which saw any parts of the business that could readily be sold – which included the domestic business – being sold," Elder said.

"And then the South Island export business on the West Coast – the business plan for that very simply said [was that] Stockton had a three to five-year economic life remaining so it was going to be mined out."

Within three months Elder and other members of the management team had adjusted their view of how world energy markets were developing, and took a much more bullish view that has driven the company forward to now.

"[We recognised] that rather than the pervading view in New Zealand at the time – which was that coal was a sunset industry – in fact it was quite possible although not certain that the opposite was the case and coal was at the beginning of a new rise," Elder said.

In October last year Solid Energy started a five-year alliance with Downer EDi Mining at Stockton, which remained a focus of investment. The alliance has awarded a $63 million equipment supply package to Gough Group.

Elder said it would take until mid 2010 before it took any public stance on how Solid Energy would forward one of its bigger projects – a potential $1.5 billion coal to fertiliser or urea production plant.

"The only thing I would comment is that none of the work we've done to date has identified the major red flags that say we should be giving guidance that this thing is dying."

- © Fairfax NZ News