Stockton delays cost Solid Energy profit

26 April 2007

Stockton delays cost Solid Energy export shipments and $25 million profit

Nineteen months of delays in accessing high quality coking coal on the Stockton ridgeline will result in the loss of up to five export shipments before the end of June and cost coal producer, Solid Energy, $25 million in profit before tax for the current financial year.

Solid Energy Chief Executive Officer, Dr Don Elder, said today that over the last two years Solid Energy has developed and implemented a series of “work-around” mining plans for the Mt Augustus ridgeline area of the mine, while the company sought wildlife permits and then searched for and collected increasing numbers of native land snails (more than 5,300 to date). More recently, anti-mining activists have caused further delays by occupying areas near the ridgeline and requiring the company to halt operations for safety reasons.

Snail collection is not scheduled to finish until the end of May, meaning that the company cannot access the last major area of ridgeline coal until mid/late June.

“We have now reached the point where we have no other areas of high quality coal that we can access to meet contracted customer orders. When we applied for a wildlife permit in August 2005 no one could foresee the length of time all this would take. The current losses have not been caused by the Department of Conservation. Department staff have worked with us very cooperatively and supported us in finding options to minimise the impacts on our production. However we are all working within a defined process and obviously the increased number of snails found is outside the Department’s or Solid Energy’s control.

“As the snail numbers have risen and necessitated further searches it has become increasingly more difficult to access high quality coal that we need to blend with lower quality coals for these export shipments. We have now had to tell these customers that we can’t meet their orders. They will have to buy substitute coal elsewhere, which will erode Stockton’s competitive position in the market.”

Solid Energy will cut production at Stockton from 1 May for about two months, from current monthly production of 180 – 190,000 tonnes to about 60,000 tonnes a month. Coal trains will reduce from five to six a day to two to three a day for the two months. Production at Stockton was forecast to total 2.12 million tonnes (mt) for the year ended 30 June, but this will now be reduced to between 1.82 and 1.88 mt.

Because most costs at Stockton are fixed and cannot be reduced significantly when production stops, the resulting loss in profit before tax is close to $25 million.

This excludes costs, now nearing $10 million, to obtain and work under permits to collect, relocate and protect the snails, and to defend these permits against legal challenges by anti-mining activists.

Solid Energy will work from July to replenish very low stock levels that pose a continuing risk to meeting contracted shipments. However the company has limited ability to recover the lost production and revenues over and above normal future supply.

ENDS

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