$86m down black hole at state coal mines

By Brian Fallow

WELLINGTON - Solid Energy - the state-owned enterprise the Government tried to sell last year for $100 million - made a loss of $86 million in fiscal 1999, its annus horribilis, wiping out 70 per cent of its equity.

The bottom-line loss reported by the state-owned coal miner yesterday, which followed a $13 million profit the previous June year, included $78 million in unusual charges. It has required a capital injection of $42 million by the Government.

The directors have written off $34 million in capital expenditure associated with the West Coast jetty project, now abandoned, and the Mount Davy mine.

Marking to market the company's controversial foreign exchange forward cover accounts for $28.4 million in unrealised losses, to go with $5.1 million of the realised variety. The company has $333 million in forward cover, taken out at an average of US62c. The spot rate yesterday was around US51.5c. No maturity profile was disclosed.

Redundancy costs of $12 million arose from the axing of 120 office and 71 mine jobs. The former board and chief executive also lost their jobs. The latter, Ian Collinson, was paid in total between $420,000 and $429,000 in salary, annual leave and contract settlement entitlements.

Solid Energy's sales revenue fell 14.6 per cent to $159.9 million, reflecting a 2.6 per cent drop in volumes of coal sold and, primarily, a collapse in prices in the wake of the Asian crisis.

But the company said a significant improvement in export volumes in the June quarter had continued into the new financial year.

An interim agreement with Tranz Rail at the end of 1998 had cut freight cost for West Coast coal to Lyttelton by 25 per cent and negotiations on a longer-term agreement were proceeding well.

Accordingly, Solid Energy has decided not to proceed with the construction of a coal terminal on the West Coast, and the costs of obtaining the necessary consents have been written off.

The staff layoffs had reduced overheads from about $5.20 a tonne to around $3, the company estimated, but it noted that best practice in Australia was less than $2.

The $86 million loss cut shareholders' funds from $22 million to $36 million or only 22 per cent of total assets. Since balance date Solid Energy has been recapitalised by the Government by way of $42 million in subordinated debt.

The funds would be used to fund the cost of closing surplus foreign exchange contracts and financing Solid Energy's share of a new mine near Greymouth, the company said.

Last year the Government cancelled the sale of Solid Energy after receiving only two bids, both understood to be for less than $30 million and well short of the $100 million-plus anticipated.

Earlier this year it indicated it may try to put the state owned enterprise up for sale again.