Solid Energy declares $335m loss after asset writedowns, restructure costs
Financially distressed state-owned coal miner Solid Energy has declared a $335 million loss for the year to June 30, reflecting writedowns in the value of its assets of $215.3 million and restructuring costs of $102.2 million.
The company published the result without fanfare on its website today. It is likely to mark the low point in its fortunes after declaring a $40.2 million loss last year, which precipitated a clean-out of the Solid Energy board and the departure of its then chief executive, Don Elder.
Since then, more than 600 jobs have gone from Solid Energy, the company has closed unprofitable mines, quit experimental new products that contributed to the size of its problems, and put up large chunks of Southland farmland for sale, which it had previously intended to mine for low-grade lignite coal.
Terms of a capital restructuring and new lending from the government to help the company get back on its feet were announced earlier in the week, but at June 30, its gearing ratio had blown out to 81 percent from 42 percent the year before.
Banks that had lent to Solid Energy agreed to take redeemable preference shares in the company, worth $75 million, while the government took another $25 million of the shares, which may never be repaid, effectively giving the coal miner a $100 million cash injection. This will take gearing back to around 56 percent.
Secured lending from the Crown worth up to $130 million was also announced.
The swathe of impairments announced in the 2013 financial year results suggests the new board, under chairman Mark Ford, has tried to pack as much cost into one year as it can to give a clean slate for the future, and reflecting a hope that international coking coal prices will rise from their current low points.
The value of Solid Energy's coal assets is volatile in response to coking coal prices, which plummeted from US$221 tonne in June 2012 to a low of US$130.75 a tonne in June 2013, which was the main contributor to a 35 percent drop in revenue to $631.1 million.
Stripping out all the one-off costs, Solid Energy's underlying trading performance was a surplus of $22 million, which chairman Mark Ford said was "a less than satisfactory trading performance."
The largest single writedown in the last financial year was $80.1 million against the value of the Stockton opencast mine on the West Coast, followed by $53.1 million against the Spring Creek mine, which was mothballed during the year and had already suffered a $64.3 million writedown the previous year.
Land and mineral rights, $18 million of which relates to Southland lignite coalfields, have been written down by $32.9 million, while the Mataura plant commissioned earlier this year to make briquettes from lignite has been written down by $26.2 million, which is most of its development value.
Another $23.9 million was written off against the value of its trial underground coal gasification plant in the Waikato which, although successful, no longer fits the company's plans.
The only bright spot on the assets side was reversal of impairments, worth $21 million, against the Huntly East mine, following the successful renegotiation of contracts with major customers. However, investment in a ventilation shaft for a part of the mine that will not now be developed was written off to the tune of $6.4 million.
Total restructuring and redundancy costs during the year were $46.7 million. The site of the Pike River coal mine, purchased for $7.5 million in July 2012, was written down by $4.7 million.
"The impact of change and restructuring on our employees and on regional communities throughout the year has been as severe and as far-reaching as any in the company's 100 year-plus history," said Ford in a statement. "While our focus is on paying off our debt and further reducing costs through greater efficiency, we hope to be in a position to reinvest in our key coal mining regions once there is a sustained improvement in the market."