Global recession wallops Solid Energy, despite record year

By Pattrick Smellie

Oct 14 (BusinessWire) - The global credit crunch ruined what would otherwise have been a stunning year to June 30 for Solid Energy Ltd, which still managed to report a record $111 million tax-paid profit, despite export order cancellations and large foreign exchange losses.

That profit represented a 22.9% return on shareholders funds and was up from $34.3 million in 2008, reflecting increased production from key coal mining assets, especially in the first few months of the last financial year. However, forecast dividends of more than $100 million were cut back to $49.5 million, and capital spending in the year ahead would mean a smaller contribution to government coffers next year, chairman John Palmer warned.

The plunging kiwi dollar caused foreign exchange losses of $83 million, while another $19 million of forward hedge contracts had to be unwound to cope with cancelled orders from some customers, with whom relations became "severely strained", chief executive Don Elder said

"In effect, we had international coal prices being unilaterally re-set on us in February," he told the company's annual meeting presentation in Wellington. Output from the company's main mine, Stockton , was immediately cut back as premium coking coal prices plunged from US$300 to around US$100 largely in response to the sudden collapse in global demand for steel, caused by the credit crisis.

Even so, total sales topped $1 billion for the first time, although chairman John Palmer warned the company's performance in the current financial year would not be as strong.

"I am not giving any guidelines today, because the economic and pricing environment is too volatile to give useful numbers. There has been a firming in coal trading of recent months and that will be positive," he said.

With Solid Energy in the vanguard of the new Government's enthusiasm for developing the country's mineral resources, Palmer said the more difficult trading conditions would put pressure on the company as it advanced its $500 million of capital expenditure on new projects and fuels over the next five years.

"We must deliver these projects on time and on budget," said Palmer. "Unless we do that we will have neither the cash nor the credibility to progress major investment in new areas such as the lignite developments, regardless of their national importance."

Elder told the meeting that investments at the Stockton mine would secure the site's future for another 20 years, whereas it had previously been slated for closure, while investments in areas such as bio-fuels, coal seam gas, and wood pellet manufacturing would "confirm our position as New Zealand's leading bio-energy producer".

The company has signalled it may invest up to $US1 billion in the future on a coal to gas project that could allow New Zealand to become self-sufficient in diesel and urea-based fertilisers.

(BusinessWire)