Solid Energy presents change proposals for West Coast mines

7 May 2015

Solid Energy presents change proposals for West Coast mine operations

Solid Energy has today told its staff that it plans to reduce production at Stockton Opencast Mine in Buller from 1.4 million tonnes a year to approximately 1 Mt from July and, as a result, it is proposing to reduce the number of staff jobs at the mine from 397 to 246. Because the mine has 38 roles vacant, the proposal would result in 113 redundancies.

The proposed changes are necessary to stem Stockton’s losses which have averaged $2.1 million a month this financial year and which, without change, are forecast to worsen. The price paid for coking coal has continued to fall since mid-2014 when Solid Energy last made changes at the mine. At that time the benchmark price was US$120 a tonne. The current spot market – an indicator of future benchmark pricing – is at US$83 a tonne.

Solid Energy chief executive Dan Clifford says that since the mid-2014 change, Stockton Mine has found cost savings and efficiency gains but these improvements are more than cancelled by the continuing fall in the export price.

“Through our regular face-to-face meetings with the teams at Stockton, staff members have had a good understanding from the last restructure that another change would be needed if the market hadn’t started to recover by now,” Mr Clifford says. “In fact, it has continued to fall, with recent spot market trades at under US$90 a tonne and market analysts are now projecting pricing at approximately these levels for another 12 to 18 months.

“After the efforts that have been made at Stockton to find more efficiencies, this news will not be welcome, but in this market we simply have to pare back the operation to a size that minimizes those losses while still allowing us to maintain relevance in the international market,” Mr Clifford says.

Staff would have time to consider and provide feedback to today’s change proposal. Any feedback would be considered in reaching a final decision, expected on 26 May. The company will then undertake a process to select employees for the remaining mining jobs and in other areas where fewer people are required. The selection processes are similar to those used by the company in earlier restructurings. It is expected that this will be completed by mid-June.

Solid Energy today also outlined a change proposal at its idled Spring Creek Mine in the Grey District which would see the mine’s maintenance team reduced by six roles. Mining operations ended in late-2012 and the mine was placed into care and maintenance. A number of options for resuming mining have been investigated and Solid Energy believes there is still value in the asset.

While continuing to maintain the site remains the preferred option, the company believes this can be safely achieved with a smaller team and is therefore proposing that the current 14.5 full-time equivalent roles be reduced to eight roles, with six people made redundant.

The changes presented today, if initiated substantially as proposed following consultation, would reduce annual costs by $36 million. The one-off cost of the changes, including redundancy and payments for accrued leave, is expected to be approximately $4.3 million.

Mr Clifford says the change at Stockton was required whatever path was decided upon in response to Solid Energy’s wider financial challenges. The company in late February announced it was talking to its major lenders and shareholder because it could see a problem coming in refinancing its debts as they fell due from September 2016. The company said that while it had no immediate difficulty in meeting its commitments, it could see an issue looming and so had acted early in starting discussions. Potential responses included selling assets, liquidation or trading through.

Mr Clifford says constructive discussions and work are continuing and both shareholder and the major lenders’ group are aware of the company’s proposal in respect of Stockton.

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