Strong second half performance turns $68m

Strong second half performance turns $68 million profit

Resources company, Solid Energy has reported a net profit after tax of $67.8 million (2009: $110.8 million) for the year ended 30 June 2010. This is a major turnaround from the $6.5 million loss at the half year.

Total revenue for the year was $690 million (2009: $980 million). In what has again been a ‘year of two halves’ almost two thirds of total revenue ($433 million) was in the second half year. Solid Energy paid dividends of $54 million during the year to its shareholder, the Government: $24 million on 24 September 2009 and a further $30 million on 31 March 2010 (2009: $59.9 million).

Solid Energy Chairman, John Palmer, says the first six months of the year were difficult, with a continuing fall in international demand, low export coal prices and prolonged industrial action at the company’s mines. Internationally, traded hard coking coal prices moved from annual to quarterly price setting during the year, and recovered from a low of under US$100/tonne early in 2009 to more than US$200/tonne in the fourth quarter of 2010. Semi-soft and thermal coal prices recovered similarly.

Coal exports in the year were down, at 1.4 million tonnes (Mt) (2009: 1.6 Mt), and New Zealand coal sales were down slightly at 2.0 Mt (2009: 2.1 Mt). An additional 0.4 Mt of Spring Creek Mine coal sold by Solid Energy (2009: 0.3 Mt) lifted total coal sales for the year to 3.8 Mt (2009: 4.0 Mt). During the year the company’s Renewable Energy business sold 19,900 tonnes of wood pellets in New Zealand and for export (2009: 12,500 tonnes) and 1.3 million litres of biodiesel (2009: 0.73 million litres).

The full year result was boosted by higher export prices for some hard coking coal shipments carried over from a 2009 customer commitment and a number of one-off items, including additional unbudgeted sales to New Zealand Steel. The company also wrote-back the prior year’s $6 million impairment to our coal seam gas project, after we bought out our US partner. These gains were partly offset by an $8 million deferred tax write-down following the removal of tax deductibility for depreciation on buildings with lives of more than 50 years.

Our export coal sales are priced in US dollars (USD). New Zealand dollar (NZD) revenue from these sales is calculated and reported using the spot NZD:USD exchange rate at the time of the sale. The USD fell on average against the NZD in the year. This decreased our NZD revenue reported at spot, offset partly by a corresponding gain from foreign exchange hedging which contributed $30 million before tax.

Solid Energy Chairman, John Palmer, comments: “The company has emerged from the global economic downturn strongly positioned with the successful completion of a number of major capital projects that will allow us to increase production in our coal and renewables businesses. During the year we also continued development and investment in a range of other business areas that will create significant future value. In the Waikato, our underground coal gasification pilot plant is in development and we are preparing to expand our coal seam gas project. We have advanced all our Southland lignite conversion projects significantly including briquetting, humates, urea and transport fuels. We expect to start construction of demonstration-scale plants for lignite briquetting and a new technology that can convert lignite and biomass directly to crude oil.

“These projects all have good prospective returns. Their capital demands will be largely supported by strong operating cashflows from our existing operations, but our debt will also increase significantly.”

Solid Energy Chief Executive Officer, Dr Don Elder, adds: “The stand-out achievement for the year was a dramatic improvement in safety performance including an improvement of more than 50% in all our major safety indicators.

“Our comprehensive response to the global economic downturn saw us through the recession well. A strong balance sheet, cost reduction measures and reprioritisation of investments positioned us strongly for the early recovery in our international markets that eventuated as forecast. This was driven by continued economic growth in China and India.

“In the year we committed or spent $325 million through Solid Energy activities, including associated entities. This included $172 million of direct capital expenditure by Solid Energy, $19 million by our 51% joint venture, Spring Creek Mining Company and $134 million on leased capital items, mainly at our flagship Stockton Mine. Of the total, $249 million was spent at Stockton, primarily on the coal processing plant, mobile plant and equipment and safety and environmental projects. We completed our $34 million third wood pellet plant in Taupo and a $17 million biodiesel production facility at Rolleston.

“Our environmental performance continues to improve. A major highlight in the year was the successful completion of the first major phase of a long-running project to improve the quality of water flowing from mining areas at Stockton to the Ngakawau River. The Parliamentary Commissioner for the Environment returned to Stockton to follow up an earlier 2006 report and commended the company for our improved environmental performance and “world leading” environmental management system at the mine. This was a huge endorsement of the work undertaken by a large number of people to bring about a demonstrable improvement in our environmental management over the last five years.”

ENDS

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