Solid Energy Sales Process Achieves Strong Outcome

MEDIA RELEASE:

31 October 2016

SOLID ENERGY SALES PROCESS ACHIEVES STRONG OUTCOME

Sale and purchase agreements have been signed for the majority of Solid Energy’s key mining assets following a successful sales process that is projected to deliver outcomes in excess of forecast expectations.

The sales process encompassed the company’s mining assets across the country, which were offered for sale as a whole or in parts. The announcement of successful bidders follows a complex evaluation of bid values arising from the various asset configurations and assessment of all aspects of the possible transactions.

Agreements have been signed with:

- Phoenix Coal Limited, a joint venture of Bathurst Resources and Talley’s Group, for the Stockton export coal operation, and the two Waikato mines, Rotowaro and Maramarua, which supply for the domestic North Island market;

- Greenbriar, owned by the Palmer MH Group, a privately owned South Island resources group - for the New Vale and Ohai coal mines in Southland;

- Birchfield Coal Mines Limited, a West Coast mining business, for the Strongman and Liverpool mines on the West Coast.

The settlement dates of the transactions will vary depending on the required regulatory approvals and satisfaction of conditions, and are expected to be in the first half of 2017.

Announcing the agreements Solid Energy Chairman Andy Coupe said the values achieved reflect the culmination of 18 months intensive work to ensure the assets were in the strongest possible position for sale.

“The range of bids received were generally of a high calibre and are a pleasing response to our efforts to drive improved operating performance across the business. In this regard I wish to acknowledge the outstanding performance of the senior management team. The successful bidders were those who offered the highest aggregate value realisation for the group of assets assessed as a whole, underpinned by a high degree of confidence in their capability to complete the transactions.”

Mr Coupe said the Solid Energy Board is very pleased that these assets are going into capable hands for ongoing successful operation.

“Directors and management have worked hard to achieve this outcome and ensure continued prosperity in the local communities and regional economies in which we operate. The Board would like to acknowledge the efforts of all staff during an extended period of uncertainty. We also wish to acknowledge the considerable support and efforts of local government, creditors and Treasury in helping to achieve this result.”

The Crown has supported the sales process in a number of ways, in particular by agreeing that the environmental indemnity funding currently available only to Solid Energy will 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.

Today’s announcement follows an all-staff briefing of the next steps for the company. Solid Energy incoming Chief Executive Tony King said that staff have been kept informed as much as possible throughout the sales process and there has been significant management focus on facilitating employment opportunities for staff throughout the sales process.

“Our expectation is that a good majority of staff will be employed by the new owners, an outcome that Solid Energy has worked hard to achieve”, he said.

The company is developing a comprehensive transition programme with staff as part of the orderly wind down of the business.

Mr Coupe said the sales programme focus has been on securing the path forward for the major asset groupings discussed above.

“In this context some smaller assets remain subject to ongoing discussions. Solid Energy will update stakeholders once these have concluded.”

Ends

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.

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.

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