Press Release – Solid Energy NZ
Overview The sudden and rapid downturn from early July in international commodity markets, and the high NZ dollar, drove export coal NZD prices to the lowest levels in 5 – 7 years. The benchmark price for the quarter for hard coking coal was US$225/tonne …Quarterly Report
to 30 September 2012
19 Oct 2012
Health, Safety and Environment
The sudden and rapid downturn from early July in international commodity markets, and the high NZ dollar, drove export coal NZD prices to the lowest levels in 5 – 7 years. The benchmark price for the quarter for hard coking coal was US$225/tonne (t), down about 30% from the same quarter in 2011 (US$315/t), but the spot price which many customers demanded fell to below US$120/t in some markets.
In addition to Corporate restructuring already underway to align to a refocused long-term business strategy, we announced major business and structural proposals in response to the extremely challenging impacts of weak market conditions. We are consulting on a proposal to place Spring Creek Mine on care and maintenance. Production and staff numbers at Huntly East Mine are being reduced. Proposed changes throughout the business will reduce total jobs by 25%.
Coal: Production in the first quarter of the year was 988,000 tonnes, in line with the corresponding quarter last year. Strong performance at Stockton Mine was offset by decreased production at Spring Creek. Coal sales for the quarter were 1.0 Mt, down 11% with international sales down 27% in a weak export market to 434,000 tonnes. New Zealand sales of 572,000 tonnes were up 6%.
The Underground Coal Gasification pilot plant has produced syngas successfully since mid-April and as planned the controlled shutdown of the pilot is now underway to complete the life cycle analysis of the pilot project. Construction of the Mataura Domestic-Scale Briquette Plant is essentially complete with commissioning underway. Minor modifications required will delay the timing of first saleable coal to late this calendar year.
We consolidated the wood pellet business to Taupo and are progressing the Biodiesel sale process.
Resources: During the quarter we proved significant increases in key coal reserves and resources for further mine expansion and development. On the West Coast, we confirmed an estimated 42 million tonnes (Mt) of Measured and Indicated coking coal resources in the Grey and Buller regions, most well suited to our existing export coking coal blends. Near Reefton at Burkes Creek, we are confirming an estimated inferred resource of 18 Mt suitable for domestic markets. We are firming plans for small expansions of existing operations in Southland and at Huntly.
PRODUCTION: Coal production for the quarter was 988,000, in line with the same quarter of 2011.
Production at Stockton Mine was up 16% in the quarter.
The Stockton Coal Handling and Processing Plant has been running near full capacity and contributed 276,000 tonnes to the mine’s quarterly production of 475,000 tonnes.
At Rotowaro Mine production was in line with the prior year at 305,000 tonnes.
Spring Creek Mine production was down 95% to 5,000 tonnes as the mine continued in development with no coal extraction. On 29 August we suspended operations at the mine to complete a review of options after it became clear that the mine was no longer economic in its current mode due to slow development rates and falling international coal prices.
Production at Huntly East Mine was up 7% in the quarter to 103,000 tonnes in line with revised sales planning.
At 56,000 tonnes, production at New Vale Mine was in line with the prior year.
Coal from Reddale Mine contributed 10,000 tonnes to the production for the quarter. This mine commenced production in March 2012.
Included in other coal is 14,000 tonnes of production from Strongman Mine and 9,000 tonnes of coal from our Kimihia opencast pit near Huntly East Mine.
SALES: Coal sales for the quarter were down 11% to 1.0 Mt.
Export demand was very weak, driven by the sudden and rapid downturn in international steel and coal markets that began in early July, driven by the weakening global economy. The international benchmark price for the quarter for hard coking coal was US$225/t, down about 30% from the benchmark price in the same quarter of 2011 (US$315/t). Export sales for the quarter were 434,000 tonnes, down 27% and despite 149kt of carryover sales from product stockpiled due to shipping delays at the Port of Lyttelton following the Canterbury earthquakes in June 2011.
New Zealand sales were up 6% to 572,000 tonnes.
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Nature’s Flame completed its consolidation to Taupo, closing the small Rotorua plant in the quarter. Wood Pellet production decreased 25% to 9,000 tonnes and sales volumes decreased 62% to 8,000 tonnes as export sales were scaled back due to very weak European markets and the weak Euro.
Biodiesel production and B100 sales volumes were both down 45% to 274,000 and 294,000 respectively as the business focused on blended product through the sales process.
Underground Coal Gasification: The UCG pilot plant has been successfully producing syngas at our Huntly site since mid-April. During this time the key operational test programme objectives have been met and as planned, the controlled shutdown of the pilot is now underway to enable completion of post-operational analysis and monitoring. This is last remaining objective in the life cycle analysis of the pilot project.
The focus will move to analysis of the operational and post shutdown data to validate the feasibility of a commercial-scale plant.
Lignite Conversion – Coal to Fertiliser (CTF): The CTF feasibility study to confirm the economic viability, including environmental and social acceptability, of a Southland-based coal to urea development is underway. This phase of the project includes identifying project partners and selecting our preferred development partner.
Mataura Domestic-Scale Briquette Plant: Plant construction is essentially complete and the plant is working through initial commissioning procedures. During this process some minor modifications have been required which will delay the timing of first saleable coal. This is now expected late this calendar year. At full production, the plant will produce approximately 90,000 tonnes per annum of briquettes.
Coal Seam Gas: The Huntly CSG demonstration plant was completed successfully, but shut down as the CSG focus moved to seeking investment partners for the much larger Taranaki resource (~900PJ at 2C).
Resource exploration and proving, and future mine planning, were slowed considerably in response to the major downturn in coal prices.
On the West Coast, in the Grey district, we focused on the Upper Seven Mile area in our Mt Davy mining permit. We completed resource drilling for the proposed Liverpool Mine in July and confirmed 18 Mt of Measured to Indicated hard coking coal resource and 12 Mt of inferred semi soft coal resource at Tararu. We started exploration of a potential opencast resource near the privately-owned Roa Mine boundary.
In Buller we completed estimates of our Denniston resource and confirmed 6.5 Mt of Indicated hard coking coal resource. Much of this potentially opencastable coal is very suited for our export coking coal blends. We completed a drilling programme at Deep Creek block, provisionally estimating coal resources at 5.2 Mt, all potentially opencastable. This coal is mostly semi-hard coking coal.
In the Reefton area, we completed the opencast mine study for Burkes Creek. Current estimates indicate an inferred resource of 18 Mt suitable for South Island domestic markets. We continued work on an expansion of Reddale Mine.
In Southland we are firming up the mining potential of a small opencast block near the former Wairaki No 1 mine in our Ohai Coal Mining Licence.
In the North Island at Huntly we have been assessing the potential to expand Rotowaro Mine’s Awaroa 4 pit to mine higher strip ratio coal around the current pit limits.
At the beginning of the quarter we had started a significant restructuring to align the organisational structure and resources with a tightly refocused long-term business strategy, separating or divesting the renewable energy business and with further development in CSG, UCG and lignite conversion reliant on partnering and new partner investment. In September, we announced a number of additional business changes and further measures to minimise the impact of the major deterioration in global coal markets, including:
Spring Creek Mine
The economic viability of the mine has been steadily decreasing due to poor development rates and weakening export coal markets. We are proposing to put the mine into care and maintenance. All underground work at the mine, except essential safety and maintenance work, remains suspended. We expect to confirm the future of the mine shortly, having consulted with staff.
Huntly East Mine
During the quarter, we confirmed our proposal to reduce long-term coal development to ensure the mine’s immediate financial viability. This included ceasing further capital investment in the ventilation shaft and reducing total workforce numbers from 234 positions to approximately 171.
As a result of refocusing our business strategy and scope, we reduced the requirement to support underground mining operations and, in further response to the rapid deterioration in coal markets including reduced plans for near-term coal exploration and mine planning, we have confirmed a proposal to cut corporate, support services, and development staff positions from 313 to approximately 150 positions.
Health, Safety and Environment
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Solid Energy is a natural resources business that produces and supplies coal, waste wood biomass, wood pellets, biodiesel and solar water heating to markets in New Zealand and internationally. We are also bringing to New Zealand, and developing ourselves for use here and internationally leading edge technologies which will allow us to convert shallow low-energy lignites into high-value end products such as urea and to access deep higher energy coal to extract the energy as commercial gas. To find out more about our business go to www.coalnz.com.