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

 

Housing: Affordability Drops 14%, Driven By Auckland Prices

Housing affordability across New Zealand fell 14 percent in the year ending November 2014, with Auckland’s lack of affordability set to reach levels it hit during the height of the global financial crisis, according to the latest Massey University Home Affordability Report More>>

ALSO:

The Dry: Fonterra Drops Forecast Milk Volumes By 3.3 Percent

Fonterra Cooperative Group, the worlds largest dairy exporter, reduced its milk volume forecast for the 2014-2015 season by 3.3 per cent due to the impact of dry weather on production in recent weeks. More>>

ALSO:

Strike: Lyttelton Port Workers Vote To Escalate Dispute

Members of the Rail and Maritime Transport Union (RMTU) at Lyttelton Port today voted to escalate their industrial action. Around 200 RMTU members have been operating an overtime ban since 17 December and today they endorsed a series of full withdrawals of labour at the port. More>>

ALSO:

Scoop Business: NZ Dollar Falls To 3-Year Low As Investors Favour Greenback

The New Zealand dollar fell to its lowest in more than three years as investors sold euro and bought US dollars, weakening other currencies against the greenback. More>>

ALSO:

Scoop Business: NZ Govt Operating Deficit Smaller Than Expected

The New Zealand’s government’s operating deficit was smaller than expected in the first five months of the financial year as a clampdown on expenditure managed to offset a shortfall in the tax-take from last month’s forecast. More>>

ALSO:

0.8 Percent Annually:
NZ Inflation Falls Below RBNZ's Target

New Zealand's annual pace of inflation slowed to below the Reserve Bank's target band in the final three months of the year, giving governor Graeme Wheeler more room to keep the benchmark interest rate lower for longer.More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news