Record year for energy producer

10 October 2007
Record year for energy producer

Record coal sales of 4.8 million tonnes (2006: 4.67 mt), including record sales in New Zealand of 2.61 mt (2006: 2.2 mt), have led to a record after-tax profit for the year ended 30 June 2007 of $94.1 million (2006: $85.5 million) for Solid Energy New Zealand Ltd.

While it was a challenging year for many of the company’s coal operations, total production was maintained at 4.65 mt, the same level as the previous year (2006: 4.64 mt), due in the main to the acquisition of New Vale Opencast Mine, near Gore, in December 2006.

However revenue and coal exports were down. Work to collect and relocate native land snails and ongoing protest action at Stockton Opencast Mine delayed access to high-quality hard coking coal, causing the company to cancel five shipments in May/June this year. Lower US dollar export prices and the high NZ:US exchange rate were also significant factors. Exports for the year were down 11% to 2.19 mt (2006: 2.47 mt) and revenues down marginally to $564.6 million (2006: $569.6 million).

The company’s final result was also negatively impacted by ongoing costs to provide security against protestor activities at its sites and for company personnel. The total cost of these activities is now well over $1 million annually.

The company’s operating surplus (before impairment write-downs, onerous contract reversal and tax) was $107 million, down 20% on last year. Offsetting this was a pre-tax gain of $41 million associated with Solid Energy’s decision to continue mining at Spring Creek which allowed the company to reverse 2005 asset write-downs relating to the mine ($26.3 million) and to Cobden Rail Bridge ($14.8 million). The decision to continue mining also allowed the company to sell a 49% stake in the mine for $24 million resulting in a $9.7 million gain included in the $107 million operating surplus.

Solid Energy Chairman, John Palmer, comments: “This has been a good trading result, despite the loss of over 10% of our Stockton production, boosted to a record profit by one-offs including the Spring Creek reversal. The company’s financial position is sound and the balance sheet in good shape which is allowing us to continue reinvesting in mining assets, progress our investigations into the potential for using our lignite resources in eastern Southland and to invest further in the renewables and new energy areas of the business.”

Chief Executive Officer, Dr Don Elder, adds: “In New Zealand and internationally we have significant opportunities for coal. Increasingly these will involve new technologies both for end use by the consumer, and for the production of energy from coal reserves that are too deep to mine with traditional mining techniques. These include coal seam gas which we are trialling in the Waikato, coal gasification both above and underground, and the capture and underground sequestration of CO2. These are all initiatives that we are piloting in New Zealand as part of our $100 million commitment, over 20 years, in research and development into applying clean coal technologies to New Zealand conditions, new ways of using coal and alternative energy sources.

“Not only are we now New Zealand’s largest indigenous energy producer, but we are also New Zealand’s leading biodiesel producer and the largest producer of wood pellets in the Southern Hemisphere.

“Our renewables business has expanded in the year with the acquisition and expansion of a Canterbury-based biodiesel producer and the launch of Switch, a solar water heating distributor and integrated energy systems supply business, building on our established biomass business, Nature’s Flame. Nature’s Flame continues to experience strong growth and this year commissioned its first large-scale commercial wood pellet boiler, as well as converting more school boilers to wood pellets.

“Overall, health and safety performance across the company has continued to improve on the gains of previous years. Continuous improvement was achieved in the lost time frequency rate, but while the severity rate improved in the first half of the year, a small number of mostly very minor injuries adversely impacted on the year’s overall performance.

“Good progress has been made in managing environmental impacts of our coal mining business and in addressing the historical legacy of coal mining, particularly on the West Coast. Our water management initiative at Stockton Mine is now well into the construction phase with the first process line completed. Over the next six to nine months, black water run off from coal processing and stockpile areas, and from coal pits, will be progressively directed into the new system,” Dr Elder says.

Full Year Summary
Solid Energy audited result for 12 months ended 30 June 2007

Sales Volumes
Tonnes of coal sold:
Exports
New Zealand 2007
Tonnes
4.80 million
2.19 million
2.61 million 2006
Tonnes
4.67 million
2.47 million
2.20 million

Profitability
Revenue
Operating surplus before write-downs and tax
Earnings before interest and tax
Surplus after taxation

$564.6 million
$107 million
$148.9 million
$94.1 million

$569.6 million
$133.6 million
$127.2 million
$85.8 million

Dividend paid to shareholder
Return on shareholders’ funds
Return on average assets
$0
33.6%
19.1%
$20 million
42.7%
22.7%

● The Annual Report is available on our website at http://www.coalnz.com/ab-publications.htm

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