MEDIA RELEASE:
04 October 2016
Solid Energy Asset Sales Process Proceeding on Schedule
A milestone step in the sale of Solid Energy’s assets has been reached with the receipt of bids, beginning the final
stage of the sale process as scheduled.
Solid Energy has been operating under a Deed of Company Arrangement since September 2015 and is working through an
orderly sale of its assets. All land, mines and other assets have been offered for sale. This is seen as offering the
best outcome for creditors, staff and the regional communities in which the company operates.
Announcing the close of bids, Solid Energy Chairman Andy Coupe said that, as previously signaled, the company expects to
be in a position to make a statement about the successful bidder or bidders from late October.
“This first phase has run to schedule and has delivered an encouraging level of interest in the company’s assets,” said
Mr Coupe. “There is now a complex bid evaluation process to work through, to assess the most favourable option. Because
assets have been offered for sale as a whole or in parts various sale configurations are possible, each with different
outcomes. We will be making a further statement, including the next steps for the company wind down, once that
evaluation process has concluded.”
Mr Coupe noted that the recent rise in coal prices has been helpful for the sales process. “However the fact remains
that there are a significant number of coal mining assets for sale around the globe, coal prices remain highly volatile
and the market fundamentals have not changed. Against this backdrop we have worked very hard to put the company in the
best possible financial and operational position for sale, building on the efficiencies gained through successive
restructures.”
Mr Coupe acknowledged the support of a number of stakeholders. The Government agreeing to make Solid Energy’s
environmental indemnity funding available to new owners, and also the local authorities’ co-operation in relation to the
environmental indemnity negotiation, were both critical. The co-operation of the participant creditors during what has
been an extremely complex process has also been extremely important.
He also acknowledged the long period of uncertainty under which staff have operated, and that the company is
endeavouring to ensure that as many jobs as possible are retained under new ownership. He added that the effect of
future employment uncertainty could very easily have seen a deterioration in production efficiency and health and safety
observance.
Concurrent with the conclusion of the bid process, Chief Executive Dan Clifford has announced his resignation effective
mid-November. Current COO Tony King will step into the Chief Executive role, providing continuity through the sales
process and the eventual wind up of the company, which is likely to take many months.
Mr Coupe noted the Board’s appreciation that Mr Clifford has led the company through to this significant milestone
before tendering his resignation.
“Dan was appointed in 2014 at a time when the company was confronting significant financial pressures and continued
deterioration in its trading environment. He inherited immense challenges, including the assessment of safe re-entry
into, and imminent sealing of, the Pike River Mine (which the company had purchased following the fatal 2010 mine
explosion). In the face of these very complex challenges he has made an outstanding contribution to the company,
achieving both improved health and safety performance and increased operational efficiency. He will be returning to
Australia with his young family, and will leave with the very best wishes of the Board.
“Tony King has a long history with Solid Energy. He has been closely involved in the asset sales process, and is widely
respected in the coal mining industry. The Board is very pleased that it can turn to someone of Tony’s calibre to take
up the Chief Executive role in mid-November.” A comprehensive announcement regarding the company’s asset sales progress
is expected to be made in mid to late October.
Background - Asset Sales Process
Solid Energy entered Voluntary Administration in August 2015 after the directors concluded that the company had no
realistic prospect of refinancing significant debt.
Under the Deed of Company Arrangement agreed with creditors in September 2015 the directors are responsible for running
an orderly sell down process to sell the assets of the company. All land, mines and other assets have been offered for
sale either as a whole or in parts, presenting an opportunity for those assets that are economically viable to continue
trading under new ownership; delivering the best outcome for creditors and staff. The company has focused on ensuring
its assets are in the strongest possible financial position for sale.
The Crown has supported the sales process by agreeing that the environmental indemnity funding currently available to
Solid Energy would also be available to any new owner. This provides certainty for affected local authorities, who have
also supported the sales process by agreeing to cap any environmental claims at the indemnity level.
Background - Circumstances leading to the Voluntary Administration of Solid Energy In August 2012 Solid Energy announced
a $200 million decline in revenue on the back of significant deterioration in market conditions. A sharp and sustained
drop in the international coal price, coupled with softened domestic demand and the strengthening of the NZ dollar
against the US dollar saw a FY 2012 loss of $40M - down 146% from the previous year.
By June 2013 Solid Energy was carrying debt of $395m which it had taken on to support investment in new energy projects.
In response to the market downturn the company announced a review of all aspects of its business. The Board and senior
management also underwent substantial change.The new Board drove a strategy to focus on areas of core mining capability,
closure of unprofitable operations and sale of non-core assets.
Prior investments in lignite conversion, coal seam gas, underground coal gasification and renewable energy were stopped
and assets in these non-core businesses sold.
The strategy offset declines in revenue in the depressed market; but despite stabilisation of the domestic market,
global trading conditions remained challenging and the company’s financial position continued to deteriorate.
In October 2013, Solid Energy agreed a financial restructuring package with the Crown and commercial lenders designed to
give the company a chance to trade its way back to a viable and financially stable position over the following three
years. At that time, then-Chairman Mark Ford noted that success would “depend on a gradual improvement in market demand
for steel-making coal.”
Through the FY 2014 the company continued to pursue its strategy of divesting in non-core assets, and repositioning the
business as a competitive conventional coal company. Over this period the company continued to contend with challenging
market conditions: low prices, low demand and a high NZ dollar. The continuing weak forecast markets required further
write downs in the carrying value of its assets.
A further decline in coking coal prices (representing a 54% fall from peak prices in 2011) resulted in the need for
further cost reductions throughout the company in order to preserve cash and for the company to seek shareholder and
bank support for funding. The Board secured an agreement with the Government to cover Solid Energy’s land remediation
obligations to prevent the company from falling into negative equity.
Despite improved operational performance as a result of a concerted strategy to refocus the business on core mining
activities and reduce and contain costs across the organisation, the decline in the carrying value of assets outpaced
the improved operational performance, and international market conditions continued to decline. By mid FY16 coking coal
prices had dropped by 74% from the 2011 highs.
Through continued restructure, mine rationalisation and stabilisation the company’s domestic operations have maintained
profitability however fundamentally the company had previously taken on too much debt through the top of the commodity
price cycle and had insufficient equity to continue trading viably through the bottom of the cycle.
In August 2015 the company entered Voluntary Administration, concluding a period of intense negotiations with lenders
and its shareholder the Crown. In September the creditors voted overwhelmingly in favour of the Deed of Company
Arrangement.
Background – Solid Energy and Pike River
Solid Energy bought the assets of Pike River Coal Ltd (in receivership) in July 2012, following the fatal mine explosion
that occurred in November 2010 under the previous mine ownership.
Following extensive investigation of the feasibility of conducting a safe re- entry project, in November 2014, Solid
Energy announced that it would not continue with the project to re-enter the drift (main access tunnel) in the Grey
District because the company considered that the risks to life remained too high.
The mine is currently in the process of being sealed. The sales process has no impact on future plans for Pike River
mine, which are funded by the Crown.