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Setbacks Dig into Coal Miner's Profit

Posted on: Friday, 28 October 2005, 15:01 CDT

By GORMAN, Paul

STATE-OWNED coal miner Solid Energy says it is in "stable" condition despite setbacks at its Spring Creek mine that have dug heavily into its latest profit.

For the second consecutive year the company saw its net profit drop alarmingly. Its $6.3 million after-tax surplus for the 12 months to June 30 was heavily affected by writedowns and 81 per cent lower than the 2003-04 result.

No dividend has been returned to the Government as a result.

Last year, Solid Energy blamed the strength of the New Zealand dollar for a 40 per cent drop in profit.

This year, it has singled out protracted difficulties with the Spring Creek underground mine, near Greymouth, as the biggest factor in its reduced profit.

Chairman Tim Saunders said international coal demand, led by Chinese and Asian demand for steel and energy, would strengthen the balance sheet this year, along with strong demand from local customers.

However, chief executive Dr Don Elder said recent strike action by miners throughout New Zealand would have a "significant impact" on the current year.

Operating surplus before write-downs and tax was $54.9 million, $2.4 million higher than last year. Write-downs totalled $46 million -- $28 million for Spring Creek, $15 million for the new Cobden rail bridge and $3 million for work suspension at the Terrace underground mine at Reefton.

Solid Energy invested $50 million in Spring Creek as its flagship mine, but challenging geological problems led to a production shutdown last November. Sweeping reviews of mining systems and practices were carried out, costing $2 million a month in lost export sales till production began again in August.

Mr Elder said the year had been a mixed bag, with good news and crushing blows.

The future of Spring Creek, which Solid Energy had hoped might have a life of at least 20 years, was still in the balance beyond December 2006, he said.

"Options to go beyond are still up in the air. We have a large team working really hard looking at options."

The writedown on the new Cobden bridge was purely related to the problems at Spring Creek, he said.

Solid Energy had kept the Government informed about the likely lack of a dividend. Last year it paid $10 million.

Despite profit woes, the coal producer posted record turnover of $400.8 million, 20 per cent higher than last year's, and record sales volumes of 4.46 million tonnes, up 6 per cent. Solid Energy exported 2.18 million tonnes of coal and sold 2.28 million tonnes in New Zealand.

Mr Saunders said coal sales to Genesis Energy's Huntly power station and to New Zealand Steel's Glenbrook mill dominated domestic sales, along with growth in the South Island's dairying sector.

Three-quarters of overseas sales were West Coast high-value coking coals for steel manufacturing. In New Zealand, 43 per cent of coal sold was used to generate power.

"While the company's financial position has been impacted detrimentally by large asset writedowns, it is stable.

"The company has managed a difficult year operationally and is now in a strong position to maximise continuing demand for coal -- in New Zealand as a low-cost energy option for industry, and internationally for our unique coking coals."

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Source: Dominion Post

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