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Solid Energy expects greater output and profit in second half and 2009
30 April 2008 - Source: Solid Energy and Lindsay Clark - Energy producer, Solid Energy New Zealand Ltd, has made an after-tax loss of $2.7 million for the first half of its financial year to 31 December 2007 but is expecting a recovery for the full year and a strong result in the 2009 year.
Solid Energy said the first half result, while disappointing, is not unexpected.
The company said that as the Stockton opencast export coal mine returns to full production and the benefits of strong international coal prices flow through into the business, stronger results are forecast for the next 18 months.
Coal production for the December half fell by 12.4% to 2.05 million tonnes from 2.34 million tonnes in the same period of 2006.
Coal sales in New Zealand were marginally lower at 1.21 million tonnes (1.22 million tonnes in the 2006 half) and exports down 24.7% to 843,000 tonnes (1.12 million tonnes).
Profit dropped $38 million from $35.3 million in the first half last year while revenue was down 14% to $240.4 million from $279.5 million for the same period last year.
Solid Energy said production difficulties at the Stockton export mine and slippage of an export shipment into the second half hurt profit results. Coal demand for the Huntly power station also was less than expected.
Solid Energy chairman, John Palmer, said that while the result is disappointing, the short-term outlook remains positive. From the fourth quarter Solid Energy will benefit from expected record benchmark prices for internationally-traded coals, he said.
“Like other resource companies, Solid Energy is seeing very high escalations in production costs, particularly in equipment, materials and specialist suppliers. The inflation outlook for New Zealand is of concern, coupled with and partially driven by a skills shortage and very tight labour market, which is especially acute in our industry,” Mr Palmer said.
Chief executive officer, Don Elder, said key challenges for the business include sustaining production target rates, while containing cost escalations in the face of the risk of a higher New Zealand dollar, and agreeing a new long-term contract with New Zealand Steel.
Dr Elder said positive developments were an 18-year transport agreement with Pike River Coal to rail coal to Lyttelton, resumption of coal extraction at the Spring Creek mine, and a short-term agreement with New Zealand Steel for coal supply to its Glenbrook mill. However, customer uncertainty about the cost of the proposed Emissions Trading Scheme prevented conclusion of a longer-term contract with New Zealand Steel.