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Slumping prices and strike action pole-axe Solid Energy's first half

Friday 26th February 2010

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Solid Energy, the government-owner coal miner, is cancelling all major capital expenditure after its earnings turned to a $6.5 million loss in the six months to December 31.  

The loss compares with a $78.4 million profit for the same period a year earlier, reflecting falling world coal prices and local industrial action, and led the chairman, John Palmer, to openly question the company's long-term viability.

"While over the next six months we expect our financial performance to return to profitability, we are far from satisfied with our performance," said Palmer. "We have placed on hold major capital expenditure, at the underground mines in particular, until we see a step change in performance that will ensure that these operations are viable longer term."

However, he also said Solid Energy was emerging from the global economic recession "in good shape and with a strong balance sheet that will support our plans for future growth".

Revenue for the first half of the current financial was $257 million, compared with $516 million in the previous corresponding period, reflecting a drop in premium hard coking coal prices from US$300 a tonne to US$128 a tonne.

A drop in total coal volumes sold of around 20% to 1.68 million tonnes was largely attributable to five weeks of industrial action at the company's main mining sites.

While the drop in profitability was "drastic", coking coal prices were recovering, the company said in a statement issued to the NZX as part of its response to government demands that SOEs begin continuously disclosing material information in a manner similar to listed companies.

The company was committed to "a more collaborative and less confrontational approach in these negotiations", chairman John Palmer said.

Running in Solid's favour was a $12.1 million foreign exchange hedging gain in the period under review, compared with a $44.3 million forex loss in the same period a year earlier.

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