Solid Energy has today told its Waikato staff that Huntly East Underground Mine will stay open but it is proposing to reduce management, support services and workforce roles by 107, from 193 to 86, as part of the company’s on-going response to the depressed global coal market.
If the proposal is implemented, 93 people would be made redundant, (24 management and support services staff and 69 mineworkers at Huntly East Mine) as some of the roles are currently vacant due to a hiring freeze that has been in place since last year.
Solid Energy Chairman, Mark Ford, says that Solid Energy continues to review all parts of its business in response to the downturn in the international coal market and its high levels of debt.
“We continue to believe that Solid Energy has a good operating future and our North Island operations have an important role in that. The company has a long history in the Huntly community and we know this news will have a big impact on local families and the local area,” Mr Ford says. “We hope to be in a position to reinvest in the Waikato once there is a sustained improvement in the market.”
“We want to keep Huntly East open as we think there is long-term value in the asset and in the short to medium term we want to keep our options open. But with current international prices and given Solid Energy’s need to generate cash and not incur further debt, the economics of mining underground at Huntly East Mine do not justify keeping the operation going in its current form. We have to get our costs down and we plan to do that at Huntly East by stopping all development work and cutting production to a third of last year’s, to about 100,000 tonnes.
“Because our two largest customers have the ability to import coal, the international thermal coal price effectively caps the price we can get for our product in the North Island and, as a result, the cost of production. As an indication, the price of Newcastle thermal coal, an indicator of the international thermal market has dropped 35% in the last 18 months from US$120/tonne to US$78/tonne,” he says.
“Our forecast volumes and revenues in the North Island market are both down for the current 2014 financial year. Revenues will drop by 44% on last year and we’ll be producing just under 1 Million tonnes (Mt) of coal this year to meet customer demand, compared with 1.6 Mt last year. This will increase to about 1.3 Mt annually for the following four years.”
Mr Ford says that in the short term most of the coal produced to meet customer contracts will come from the company’s lower production cost Awaroa pit at Rotowaro Mine. In the case of New Zealand Steel, which has recently agreed a new five-year coal supply contract with Solid Energy, Rotowaro coal will be blended with smaller volumes of the higher quality and higher production cost Huntly East Mine coal.
Solid Energy is proposing to reduce the number of working areas at Huntly East Mine from three to one, worked on two shifts, five days a week with maintenance and monitoring work carried out at the weekend. In designing the structure for the mine the company has considered the changes signalled in the Health and Safety (Pike River Implementation) Bill which is currently before Parliament to ensure that it will comply with the requirements of the new legislation.