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6 - Thursday, April 3, 2014
West Coast Mining
E-QUIP ENGINEERING LTD
SPECIALIST MANUFACTURERS OF
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42 Jacks Road, South Beach, Greymouth 7805 Ph: 03 768 0135 Fax: 03 768 0132 E: firstname.lastname@example.org
For the last 12 months the board s main
focus has been agreeing the re nancing
arrangements and restruc-turing the
business to ensure our on-going viability.
On Friday, we announced our result
for the rst six months of the year. Weak
global coal markets have impacted our
revenue. However, as we increased our
export tonnage by 180,000 tonnes,
export revenue was down only $7.6
Domestic customers purchased
600,000 tonnes less than last year,
resulting in $80m less revenue.
These declines in revenue were o set
by operating costs being approximately
$40 million less. The net result was a
NPAT loss of $40.9m for the half year to
We almost broke even on our operating
cash ows, an improvement of almost
$55 million over the comparable period.
In June 2012, the cash cost per saleable
tonne of coal was NZ$179/tonne. By
December 2013 this has been reduced to
This is a signi cant achievement, but
we may need to dig deeper if prices
remain weak or fall further.
Solid Energy has changed signi cantly
since the committee reviewed us a
year ago. The business is now almost
exclusively refocused on its area of core
expertise --- developing, mining and
marketing coal to customers in New
Zealand and overseas.
I say almost because we are still in the
process of exiting the investments which
are no longer part of the core company
strategy. Selling the surplus farm land in
Southland is an example.
Since Solid Energy last appeared before
the committee, we have concluded an
agreement with the Crown and our
major lenders based on this strategy. We
appreciate the support received from
Government and our banks and bond
holders to enable us the opportunity to
turn the business around.
We are subject to a high level of
reporting and scrutiny from our banking
group and the Crown.
We provide monthly nancial updates
to both parties via KordaMentha to
ensure we stay within our agreed
We have a clear set of nancial and
non- nancial requirements to enable us
to retain the support of our banks and
our result for the half year was better
In other words, it was better than
had been anticipated at the time the
re nancing package was agreed. That s
because the company has made good
progress in reducing costs and has
responded to the falling coal price by
not spending our budgeted capital
expenditure and taking advantage of our
lower cost resources.
We are conscious there is still more
work to do to improve margins in
order that the company can survive
this low priced environment. On the
revenue side, global coking coal pricing
determines about 60% of the company s
We export approximately 2 million
tonnes annually. The international
seaborne market is estimated to be
278 million tonnes, and so Solid Energy
represents a mere 0.7% of the market.
We therefore have no capacity to
in uence pricing. Today that market
is oversupplied with excess coal,
particularly in China, the largest import
market. In the middle of 2012, the market
dropped suddenly from about US$224/
tonne to US$142 per tonne by October.
The average benchmark price for
hard coking coal we have agreed for
our exports up to the end of December
averaged US$148.50 (NZ$182) per tonne.
This is slightly lower than our budgeted
benchmark rate of NZ$184 per tonne.
Our major customer base has remained
loyal and we are still able to get rm,
on-going commitments for future
This allows us to plan our production
with con dence knowing we can export
xed tonnage, however we are exposed
to changes in the market price. Domestic
sales make up the other 40% of our
The 600,000 tonne downturn in sales in
the half year was due to reduced o -take
from our domestic customers re ecting
the transition of our long-term contracts
with our major North Island customers.
Since the committee last reviewed
us, we have renewed about 1.1 million
tonnes of business, primarily as the
result of concluding four-year supply
arrangements with our two major North
Island customers, Genesis Energy and
New Zealand Steel. In addition, we have
written nearly 150,000 tonnes a year of
new domestic business.
We are actively seeking new business
as we expand two of our South Island.
At an operational level, all mining
operations are being reviewed to ensure
we can supply our customers to their
speci cation at the best possible prices.
Our mines are continually looking at how
they can work more e ciently.
The company continues to improve its
health and safety performance despite
the uncertainty and the distraction
that restructuring and redundancies
inevitably cause. Lastly, the outlook.
On Friday, we again noted that our
plans anticipate that any improvement
in international pricing for our coal
could be some time away and likely
to be slow when it begins. The board
and management is using a reputable
international market analyst as the
source of forward looking coal pricing,
at the same time we are testing the
reasonableness of their advice.
Similarly, for forward looking currency
forecasts we are using an average of New
Zealand bank providers for the rst two
years then applying more constructive
In addition to adopting this approach
we will also be testing the downside
scenario in the event the timing of and
speed of the recovery di ers from our
Finally, to date Solid Energy has not
needed to call on either of the two
$50m secured facilities or the $30m
working capital facility made available
by the Crown as part of the re nancing
We will be continually monitoring the
markets and will continue to restructure
to give us the best chance to ride out this
dip in coal prices and relative strength
of the New Zealand dollar to return to a
In the event coal prices do not improve
a further review of our costs and carrying
values of our assets is likely."
Turning Solid Energy around
Huge excavator strips overburden from the pit at Reddale Mine near Reefton
Solid Energy has made no attempt to hide the fact that things are tough in the coal sector. Interim
chairwoman PIP DUNPHY recently faced the parliamentary commerce select committee and explained
the state of play.
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