Huge shakeup by Solid Energy

Solid Energy has announced a major downscaling in operations and is laying off 140 staff.

As reported on NBR ONLINE earlier this week, staff have been awaiting with trepidation a public statement mid-week about the fate of their jobs.

Don Elder, the second highest paid chief executive of any state-owned corporation, recently warned the Crown Ownership Monitoring Unit of a massive turnaround in Solid Energy’s performance.

That prompted Finance Minister Bill English to say that a public float was on the backburner until performance improves.

The state-owned coal company this afternoon announced it will cut 140 jobs from its workforce of around 1400, close its Spring Creek underground mine on the West Coast, and reduce operations at its Huntly East mine after a downturn in demand from major industrial customers.

The company will also cancel $100 million of capital expenditure scheduled in the current financial year as it grapples with a steep fall in international coal prices and an anticipated cut in annual revenues of around $200 million.

It will also close its uneconomic bio-diesel plant, but will carry on with controversial plans to exploit vast deposits of low quality lignite coal in Southland for briquettes and possible conversion to transport fuels and fertiliser.

While it will pull back from underground mining, Solid Energy will commit new resources to underground coal gasification projects, but will shift its focus from Huntly to its UCG prospects in Taranaki.

Opencast mining at the Stockton mine, on the plateau above Westport, will be "optimised to generate additional cash".

Revenues in the financial year to June 2011 totalled $829 million, as global coal prices peaked, up from $690 million in the year to June 2010.

Solid Energy will release its results for the year to June 30, 2012, this Friday but had signalled it would inform staff today about job cuts to address its declining performance.

While the company faced a similar plunge in coal prices and demand in 2008, during the global financial crisis, the difference now is that the New Zealand dollar has stayed persistently strong, whereas it fell in line with global market conditions four years ago, Mr Elder said today.

International prices for high-grade coking coal have fallen more than 40% to below $US200 a tonne from above $US300 in 2011.

"While many in the industry still expect demand, driven by Asia, to pick up again strongly some time after 2013, Solid Energy believes it needs to plan to withstand these market conditions for at least the next 12 months and possibly for 24 months or longer." 

Among key decisions is a pull-back from underground mining in favour of lower cost open-cast operations, with the Huntly East mine to operate on a reduced schedule and the Spring Creek mine north of Greymouth closing immediately for a review of its operations.

Spring Creek had "struggled to be profitable for some time", while Huntly East needed firmer orders from major North Island customers to justify longer term development.

Staff at Huntly East will reduce from 234 to 171, a loss of 63 positions. A planned upgrade to mine ventilation will no longer be necessary and contractors with nearly 60 staff on that project will also cease work.

"Restructuring the organisation to meet the needs of the focused business is expected to result in about 140 fewer positions, about 75 in coal operations, including Huntly East mine, and about 65 in other areas of the business," Mr Elder says.

A consultation period with staff will run to late September, when final decisions will be confirmed.

While the Nature's Flame woodburner pellets business willcontinue to operate on a standalone basis, the company will sell or close its bio-diesel operation as the loss of government subsidies now makes it uneconomic.

The company's other open-cast mines at Rotowaro and Reddale, and New Vale will continue current operations.

On lignite, Mr Elder says the company will go ahead with full commissioning of its briquette plant in Mataura in October and will complete the first stage of a feasibility study into converting lignite to urea for fertiliser.

"This work includes examining technology options and capital costs for the plant. Decisions about the plant and mine locations are not expected before the end of 2012."

The lignite announcement coincides with the release this morning of a report by the economic consultancy BERL for the environmental lobby group WWF-New Zealand, suggesting Southland could grow its economy in other sectors, which had a lower carbon footprint.