Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Solid Energy gearing stuck around 70% unless prices recover

Solid Energy gearing stuck at about 70 percent unless coal prices recover

April 11 (BusinessDesk) – Solid Energy continues to forecast far higher levels of debt than sector peers and does not expect that to improve until international coal prices recover, Parliament’s commerce select committee says in a report on the troubled state-owned enterprise, published today.

Solid Energy came close to commercial failure in 2012 when, like other coal mining companies around the world, it was caught out by a sharp plunge in the price of coal, which saw it report a $40.2 million loss in 2012 and a further $335.4 million loss in 2013, reflecting writedowns and restructuring.

The committee reports includes a minority view by Labour Party members, who say it was “grossly irresponsible of the government” not to initiate an open inquiry into Solid Energy’s near failure at the cost of some 800 jobs to date and some $400 million to the Crown.

The committee reports it asked Solid Energy’s current chair, Pip Dunphy, whether the company would have been in a better position today if its level of debt in 2012 had been more like 10 percent of the value of its assets, “the same as other mining companies at the time.”

Such low gearing would have helped, Dunphy told the committee, but that “typical gearing ranges between 20 and 50 percent in the mining sector.”

“We noted (Solid Energy) has forecast gearing in excess of 70 percent from 2014/15 onwards”, despite expecting a significant reduction in debt over the next two years after renegotiating with its banks last year.

“This may not be achieved if coal prices remain at current levels,” the committee reports.

Dunphy told the committee that Solid Energy “believes its business can be sustainable with a hard coking-coal price of US$140 to US$150 a tonne, but the current price is only US$119.”

The committee also queried consideration of reopening the underground semi-hard coking coal mine at Spring Creek, on the South Island’s West Coast. The mine was mothballed as part of wider restructuring because of uneconomically high mining costs and safety concerns.

The committee was told a feasibility study was under way on recommencing operations at Spring Creek because its very low ash coal is desired in the silicon and ferroalloy manufacturing processes, making it worth up to US$100 a tonne more per tonne than coking coal.

“However, this potential will be limited until coal prices increase internationally,” the committee report says.

In questions on corporate head office costs and company culture, the committee was told that almost all the board members and senior managers responsible for the decisions that led to the company’s financial difficulties had departed, and that half the space at the Christchurch corporate headquarters had been leased to other tenants.

However, Solid Energy’s headquarters would remain in Christchurch “for strategic reasons.”

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

What Winter? Temperature Records Set For June 20-22

The days around the winter soltice produced a number of notably warm tempertaures. More>>

Conservation Deal: New Kākāpō Recovery Partnership Welcomed

Conservation Minister Maggie Barry says the new kakapo recovery partnership between DOC and Meridian Energy is great news for efforts to save one of New Zealand’s most beloved birds. More>>

ALSO:

Tech Sector Report: Joyce Warns Asian Tech Investors View NZ As Hobbits And Food

Speaking in Wellington at the launch of a report showcasing the value of the technology sector to the New Zealand economy, Joyce said more had to be done to tell the country's technology stories overseas. More>>

ALSO:

Mediaglommeration: APN Gets OIO Approval For Demerger Plan

APN News & Media has received Overseas Investment Office approval for its plan to split out its NZME unit ahead of a potential merger with rival Fairfax Media's New Zealand operations. More>>

New Paper: Ninety-Day Trial Period Has No Impact On Firms' Hiring

The introduction of a 90-day trial period has had no impact on hiring by New Zealand companies although they are now in widespread use, according to researchers at Motu Economic and Public Policy Research. More>>

ALSO:

Corrections: Serco Exits Equity Stake, Remains As Operator

Serco has sold its equity stake in the company that holds the contract to design, build and run Wiri Prison in South Auckland but continues as sub-contractor to operate the facility. More>>

GDP: NZ Economy Grows Faster-Than-Forecast 0.7%

New Zealand's economy grew at a faster pace than expected in the first quarter of 2016 as construction expanded at the quickest rate in two years. The kiwi dollar jumped after the data was released. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news