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Record year for second-largest NZ energy producer

19 October 2006
Record year for New Zealand’s second-largest energy producer

Record sales of $570 million ((2005: $401 million) and record production of 4.67 million tonnes (2005: 4.46 mt) produced a record after-tax profit for the year ended 30 June 2006 of $85.8 million for Solid Energy New Zealand Ltd. The company paid a $20 million dividend to the shareholder, the Government, in the year.

Solid Energy Chairman, Tim Saunders comments: “While the year has been challenging on a number of fronts, high export prices and continuing strong New Zealand sales have returned the record after-tax profit. This is in contrast to the position last year when pre-tax asset write-downs of $46 million reduced after-tax profit to $6.3 million.

“The record 2006 trading result has significantly improved the company’s financial position, placing it on a firm foundation for future investment in current and new mines and in other energy initiatives. Last week we were able to give the go-ahead to a $25 million investment in Spring Creek Mine which was very pleasing after the months of speculation and uncertainty about the long-term future of the mine.

“As I come to the end of my eight-year term as Chair, I am also pleased to note that Solid Energy is now New Zealand’s second-largest producer of locally-sourced energy and has successfully diversified into other energy areas. The company is currently trialling coal seam gas in the Waikato, and it is now Australasia’s largest non-forestry biomass energy company.

“Diversification into these areas was a strategic decision made some time ago, based on detailed analysis of global and New Zealand energy trends, identifying key risk and opportunities to the business. By focusing only on the conventional coal business, it was clear that the company was vulnerable to many factors that were not predictable and were beyond its control.”

Chief Executive Officer, Dr Don Elder, adds: “In line with this strategy Solid Energy is now actively pursuing the potential for using Southland’s huge lignite resources to the advantage of the company and the country. We have an active programme of land acquisition to ensure our access to sufficient lignite volumes to allow us to use this resource for a range of high-value products. These could include petrochemicals, urea and significantly for the New Zealand economy, transport fuels. We are currently completing our evaluation of these options.

“We are also leading the way in developing technologies that may be needed to support New Zealand’s sustainable energy future in a world facing more scarce and expensive energy, while simultaneously seeking to reduce CO2 emissions. Solid Energy probably has the largest single New Zealand commitment to these solutions as part of our $100 million, 20-year technology research and development programme. This includes a leading role in developing carbon capture and storage (sequestration), seen internationally as a key option, for New Zealand conditions.”

Record sales: Exports increased in the year by 13% to a record 2.47 mt (2005: 2.18 mt) with markets again driven by very strong Chinese and Asian demand for steel and energy. Sales in New Zealand of 2.2 mt remained in line with last year (2.28 mt), dominated by our two largest domestic customers, New Zealand Steel and Genesis Energy. Sales were reduced by 17 days of industrial action at key sites across the country at the start of the financial year, resulting from Collective Agreement negotiations with the Engineers’ Union. Solid Energy has also faced productivity limitations due to constraints in accessing high-quality coking coal on the ridgeline at Mt Augustus area of Stockton Opencast Mine.

Dr Elder adds: “Despite this our opencast mining operations continue to perform well, with Stockton producing a record 2.1 mt of predominantly export coal, slightly up on last year. Underground mining remains a challenge and we will be working hard to deliver to our targets at Spring Creek and to secure long-term customer contracts for our mines at Huntly East and Ohai.

“Our biomass business, Nature’s Flame, continues to perform well, with a 39% increase in revenue, due in part to the successful commissioning of a new mill in Rotorua. Appliance sales were up 31% as colder weather drove record pellet sales. Residential and commercial central heating appliances were introduced to the New Zealand market for the first time. In June Nature’s Flame converted Rotorua Girls’ High School’s boiler from burning coal to pellets, the first conversion of its kind in Australasia.”

ENDS

See... Full Year Summary (PDF)

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