Stockton long-term investments confirmed

29 January 2009

Stockton long-term investments confirmed, production cut in response to steel downturn

Solid Energy has today confirmed it will invest $100 million in a new coal processing plant at Stockton Opencast Mine in the Buller, the next major step in a substantial long-term investment programme designed to secure a further 20-year life for the mine.

The company also said that while it has secured and confirmed orders from international customers for 10 shipments of Stockton export coal for the first three months of the year, it would cut coal production at the mine by 20% from 1 July this year in response to the worldwide reduction in international demand for steelmaking coal.

Chief Executive Officer, Dr Don Elder, says that uncertainty about the extent and duration of the international economic downturn has resulted in steelmakers, worldwide, cutting production by up to 30%. Solid Energy had long-established relationships with many of its international customers and is working with them to understand their coal requirements.

“We’re very confident in the long-term future of our business and our long-term business strategy for expansion and energy diversification. Reduced export demand and prices will obviously have a significant negative revenue impact, and we are looking to minimise our operating costs wherever possible. However reduced production, and the freeing up of some resources that have been overstretched for several years, also creates an opportunity for us. We are accelerating a number of major long-term capital projects, infrastructure improvements, and health and safety upgrades over the next year to 18 months so that we can make a return to full production when market demand increases with operations that are safer, more efficient and more productive.

Stockton Production: Stockton provides hard coking coal to steelmakers in Asia and elsewhere. In December Solid Energy customers deferred four shipments of Stockton coal and, although the 10 shipments have been confirmed for the January-March quarter, it is likely that demand in the next 18 months will be substantially weaker than in the past.

In the 2008 financial year Stockton produced 1.825 million tonnes (mt). On current plans it will have produced 1.65mt when this year ends on 30 June, a drop of approximately 10%. Based on current international demand, Solid Energy is now planning for the mine to produce 1.35mt in the 2010 year.

Barry Bragg, Solid Energy’s Chief Operating Officer, says the mining industry in New Zealand had faced a skills shortage in the last few years and Solid Energy’s focus through the downturn will be to maintain its skilled workforce and ensure the mine is in a strong position to return to full production. Managers had discussed the lower production schedule with its main contractors and Mr Bragg says the companies are now evaluating the likely impact on their workforces.

“We’ll know more around the end of March,” he says. “However, from June it is likely there will be either job cuts or fewer hours available to contractors’ workers. A small number of jobs may also be lost from our own workforce in Buller. What we’re doing now is firming up our schedules and working with our contractors to determine the impact. Between us, we’re reviewing rosters, the non-essential work programme and investigating opportunities to second people to other contractors on the site who may need more workers due to our accelerate capital works strategy.”

Stockton coal processing plant: One such firm is Nelson engineer Brightwater, which has won the contract to design and construct the $100 million coal handling and processing plant at the mine. The facility will begin operation in early 2010, separating high-value coal from rock and other waste material, and washing and grading it.

“This coal plant is integral to Stockton and to ensure we’re well positioned when the world economy turns back toward growth,” says Mr Bragg. “Our decision to accelerate such a substantial investment is a mark of our confidence in the future of the mine. The plant will allow us to recover resources which otherwise could not be sold and it will help ensure we are making the most of the remaining areas of very high quality steelmaking coals at Stockton.”

The mining system at Stockton has, over the years, generated large stockpiles of coal mixed with rock and other material such as propping timbers from historic underground mining. Plans to opencast the former Millerton Mine in the north of the coal mining licence will generate even more of this material. It is estimated that over the 20-year remaining life of mining on the Stockton Plateau the processing plant will enable up to 10 million tonnes of valuable coal to be recovered.

The plant has been designed to produce between 600,000 tonnes and 1 million tonnes of coal a year. Approximately 80 people will be involved in its construction.

Brightwater built and has undertaken upgrades of the coal washery at Solid Energy’s Greymouth joint venture, Spring Creek Underground Mine, and in 2005, carried out the design and installation of a major capacity upgrade of Stockton’s aerial ropeway.

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