State miner to dig for savings
Solid Energy is reviewing all operations to cut $120 million in costs, saying coalmines and other assets could be closed or sold.
The coalminer has been caught in a market downturn that has seen coal and coke prices plunge.
But chief executive of the state-owned coalminer Don Elder won't go as far as saying job losses had already been decided, saying the review process would last another week or so, with board approvals needed.
Grant Williamson, director in brokerage Hamilton Hindin Greene, said the commodity market slowdown partly caused through less demand from China could put Solid Energy's partial sale on hold.
Elder said substantial asset impairments were expected to be made on assets last valued at about $1.1 billion.
Impairments on some assets, including biodiesel operations and Huntly coal seam gas projects, would be in the order of tens of millions.
"[International miners] are struggling to justify their balance sheet carrying values, so are we for a lot of these. If you're taking large impairments on existing assets, you've got to be making decisions about those and those decisions ultimately lead through to labour implications," Elder said.
"I'm not signalling there will be job losses. I'm saying there will be major changes in the way we operate the company."
Those changes could include what contractors and suppliers the miner used, and what projects were kept under way.
The company wanted to get "more cash out for less cash in", he added.
Solid Energy wanted to cut at least $120m of costs via this equation "in the very near future".
Solid Energy's revenues in the year to June 30, 2013, were expected to fall $200m from what had been expected.
In the year to June 30, 2011, Solid Energy's revenue rose 20 per cent to $829m, and the company is still to release its result for the year to June 30, 2012.
Elder said there was a "dead cat bounce" period of coal commodity price recovery in April and May before a subsequent fall taking prices to new lows for the year.
"International prices for high-grade coking coal have fallen over 40 per cent to below US$200 per tonne, from well above US$300 per tonne in 2011. There are hard-coking spot shipments moving in recent weeks for as little as US$140 to US$170 a tonne."
The company's biodiesel operations could be sold or mothballed, Elder said.
Solid Energy had spent the last decade investing nearly $100m in renewable fuels such as biodiesel and Nature's Flame-branded wood pellets. But without an appropriate return, impairments would be made.
Some export and domestic opencast coalmines were under pressure, given the falling prices.
Underground mines in New Zealand needed high prices for support. Options at an underground mine always ranged from carrying on as usual to weathering the storm to mothballing the operation to closing it. A review had been taking place over the past two months, with a decision expected in the next week or so, he said.
Solid Energy has been named as one of the Government's planned partial asset sales. When asked how he saw the Government's sales plan given the coal price falls, Elder said "in the current world there aren't too many normal investors looking to buy coal companies [but] the people who invest in coal companies are saying there are bargains left, right and centre."
NZ's largest coal miner.
Total assets of $1.1 billion.
Revenue last year of $829m.
Profit last year $87m.
Total coal sales last year 4.1m tonnes.
Main markets India, Japan and China.
New Zealand sales 2.1m tonnes.
A lot used for electricity generation and steel-making.
1400 staff, including contractors.
NEW RESEARCH AND DEVELOPMENTS
Briquetting (of lignite).
Coal to fertiliser (from lignite).
Transport fuels (from lignite).
Coal seam gas.
Underground coal gasification.
- © Fairfax NZ News
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