Solid Energy plans for prolonged market slump

ALAN WOOD
Last updated 13:05 16/08/2012

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Solid Energy says it is reviewing all operations in response to a market downturn, with year to June 30 revenues expected to fall $200 million.

The state-owned coal miner Solid Energy is reviewing all aspects of its business in response to extremely challenging market conditions and a high kiwi dollar.

Solid Energy has been named as one of the Government's planned asset sales. Up to 49 per cent of the company along with other companies including Mighty River Power, Genesis, Meridian as well as Air New Zealand have been named as sale candidates.

Solid Energy said its short to medium-term outlook was similar to that faced by many other New Zealand exporters, with the impact of a major fall in international commodity prices magnified by the strong dollar.

"The steep fall in demand and prices for internationally traded coal means the business anticipates its revenues will fall about $200 million in the current financial year," the company said in a statement.

In the year to June 30, 2011 Solid Energy's revenue rose 20 per cent to $829m.

"International prices for high-grade coking coal have fallen over 40 per to below US$200 per tonne, from well above US$300 per tonne in 2011, and are at their lowest point for some years."

The outlook was different to that faced by the company during the 2008-2009 global financial crisis, Solid Energy said.

"In early 2009, as commodity prices plunged, the New Zealand dollar followed, softening the fall in New Zealand dollar prices.

"Spot prices then rebounded within a matter of months. At present there is no certainty about when international growth will resume and lift international coal demand and prices."

Chief executive Don Elder said the industry consensus was that the market bottom remained some way off.

"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.

"As a consequence, we are reviewing all areas of our business, including current and future operations, all fixed and variable costs, and the values of some of our assets, which will result in us taking significant impairments.''

The company's aim was to preserve cash through reduced spending while, as far as possible, maintaining its longer-term value opportunities.

Operational and structural changes would result from this review, Elder said. He expected to provide further detail about the company's outlook later this month when the company's 2012 financial results were announced.

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- BusinessDay.co.nz

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