Solid Energy 1H profit jumps 56% but warns of 2H downturn

Tuesday 21st February 2012

Solid Energy, the state-owned coal miner slated for partial sale, posted a 56 percent jump in first-half profit on record sales while warning earnings in the second half will be “substantially” down because of weaker coal prices and a strong kiwi dollar.

Profit rose to $70.3 million in the six months ended Dec. 31, from $45.2 million a year earlier, the Christchurch-based company said in a statement today. Sales climbed 25 percent to $537.6 million.

The first half saw the volume of coal sales rise 3 percent to 2.36 million metric tonnes, helping Solid Energy benefit from a 31 percent increase in US dollar coal prices compared to a year earlier. Sales were boosted by three shipments carried over from the previous year because of earthquake disruptions at Lyttelton Port.

The company has been adding to its reserves, including the acquisition of Cargill’s 49 percent stake in Spring Creek Mining, where work at the underground mine has been halted this week by the Department of Labour because of breakdowns.

“We are expecting further weakening of international coal prices from current levels in the short term due to lower Chinese demand for coking coal for steelmaking,” said chairman John Palmer. “Profitability in the second half is expected to be down substantially on the first-half result.”

Unlike the 2008 global economic downturn when prices rebounded “relatively quickly,” the current downturn “could be significantly prolonged” eroding the full-year profit and denting earnings in the first half of 2013, he said.

The company won’t pay an interim dividend, having paid the government $30 million at Sept. 30 last year.

The kiwi dollar’s strength against the greenback wiped about $12 million from earnings before interest and tax, it said. Exploration costs rose by $4.9 million to $15.7 million as the company ramped up exploration on the West Coast.

“While the short-term economic environment will continue to drive volatility in international coal markets, we remain confident in our long-term outlook which is strong and unchanged,” Palmer said.

Solid Energy, which is on the government’s list for partial sale, is forecast to lift sales to $1.16 billion and profit to $170.9 million by 2016 with a growing but still minor contribution from wood pellets, biodiesel and briquettes, according to an assessment by brokerage Forsyth Barr. While sales would gain 96 percent by 2016, coal production costs are forecast to grow a more sedate 36 percent.

Production at Stockton Mine rose 8 percent to 871,000 tonnes in the first half, while at Spring Creek output fell 28 percent to 200,000 tonnes because the mine is being prepared for its next five-year extraction block.

Huntly East Mine’s output fell 14 percent to 169,000 tonnes, which the company said reflected harder mining conditions in some blocks. Rotowaro Mine output fell 6 percent to 577,000 tonnes while at New Vale Mine in Southland, production rose 10 percent to 156,000 tonnes.

Production overall has been hampered by a 20 percent turnover rate for employees and Solid Energy is increasing its intake of bonded trainees, it said.

Wood pellet production rose 14 percent to 25,000 tonnes while biodiesel output rose 27 percent to 989,000 litres.

(BusinessDesk)

BusinessDesk.co.nz

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