Despite an exhaustive sales process Solid Energy has been unsuccessful in securing a buyer for Spring Creek Mine and has reluctantly taken the decision to close the mine.
Spring Creek Mine has been in care and maintenance since 2012 when production was stopped following a review of the mine’s economic viability. It will now be sealed to place it in a safe and secure state.
Solid Energy Chief Executive Tony King said that the mine closure is a disappointing outcome but became inevitable in the face of volatile coal market conditions coupled with the significant capital required to get the mine back into operation.
“We had maintained a level of optimism through the sales process that a buyer would recognise the potential for economic redevelopment of Spring Creek Mine, however that simply hasn’t happened. Interest in the site has been muted throughout an extensive sales process and closure is now the only remaining option.”
Mr King said that the mine, located at Dunollie, near Greymouth, is currently maintained by a small team of nine employees, who have today been advised of the intention to close the mine.
“We recognise that this isn’t the outcome that anyone wanted however staff have been kept informed as much as possible throughout the asset sales process and at least we are now able to provide some certainty about the future of this mine.”
A detailed closure plan including sealing of the mine will now get underway. The sealing process is expected to be relatively straightforward and it is anticipated that the closure process could be accomplished in three to four months. The associated nearby Rocky Creek coal washery will now be offered for sale to interested parties on a standalone basis, now it is clear that the mine will not require its capacity.
Spring Creek is the only mine in Solid Energy’s asset sales portfolio that has not attracted a buyer. Last October the company announced that sale and purchase agreements have been signed for the Stockton export coal operation, the two Waikato mines, Rotowaro and Maramarua, New Vale and Ohai coal mines in Southland, and Strongman, Liverpool and the Reefton mines on the West Coast. These are positive outcomes for customers, suppliers, staff, their local communities and regional economies. The settlement dates of these transactions vary depending on the required regulatory approvals and satisfaction of conditions, and are expected to be in the first half of 2017.
Mr King acknowledged the dedication of the Spring Creek staff in maintaining the Spring Creek Mine through an extended period of uncertainty and the considerable efforts of all staff during the lengthy period of asset sales leading into the wind down of the company.
For further information:
Mr Tony King, Chief Executive, Solid Energy New Zealand
Background – Solid Energy 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.