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

 

Half Empty: Fonterra's 2017 Opening Forecast Below Expectations

Fonterra Cooperative Group raised its forecast farmgate milk payout for next season by less than expected as the world's largest dairy exporter predicts lower prices will crimp production and supply will pick up. The New Zealand dollar fell. More>>

ALSO:

Pest Control: Mouse Blitz Team Leaves For Antipodes

The Million Dollar Mouse project to rid Antipodes Island of mice is underway with the departure of a rodent eradication team to the remote nature reserve and World Heritage Area. More>>

Gongs Got: Canon Media Awards & NZ Radio Awards Happen

Radio NZ: RNZ website The Wireless, which is co-funded by NZ On Air, was named best website, while Toby Manhire and Toby Morris won the best opinion general writing section for their weekly column on rnz.co.nz and Tess McClure won the best junior feature writer section. More>>

ALSO:

Pre-Budget: Debt Focus Risks Losing Opportunity To Stoke Economy

The Treasury is likely to upgrade its forecasts for economic growth in Budget 2016 next week but Finance Minister Bill English has already signalled that more of his focus is on debt repayment than on fiscal stimulus or tax cuts... More>>

ALSO:

Fulton Hogan's Heroes: Managing Director Nick Miller Resigns

Fulton Hogan managing director Nick Miller will leave the privately owned construction company after seven years in charge. The Dunedin-based company has kicked off a search for a replacement, and Miller will stay on at the helm until March next year, or until a successor has been appointed and a transition period completed. More>>

ALSO:

Gordon Campbell: On Electricity, Executions, And Bob Dylan

The Electricity Authority has unveiled the final version of its pricing plan for electricity transmission. This will change the way transmission prices (which comprise about 10% of the average power bill) are computed, and will add hundreds of dollars a year to power bills for many ordinary consumers. More>>

ALSO:

Half Empty: Fonterra NZ, Australia Milk Collection Drops In Season

Fonterra Cooperative Group says milk collection is down in New Zealand and Australia, its two largest markets, in the first 11 months of the season during a period of weak dairy prices. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news