Don Elder, CEO at State owned Enterprise coal-miner and bio-fuels producer Solid Energy, struggled to hide his disappointment this week at announcing a record profit of $110.8m because the result was so much less than the company had hoped for before the global credit crunch killed months of export orders and collapsed world coal prices.

The result was a 22.9% return on shareholders funds and was up from $34.3m in 2008, reflecting increased production and world coal prices in the first few months of the last financial year. However, forecast dividends of more than $100m were cut back to $49.5m, and capital spending plans trimmed after premium coking coal prices plunged from $US300/tonne to around $US100 largely in response to the sudden collapse in global demand for steel, caused by the credit crisis. A tumbling kiwi dollar caused foreign exchange losses of $83m, while another $19m of forward hedge contracts had to be unwound at a loss to cope with cancelled orders from some customers.

Elder told the company’s annual meeting presentation in Wellington “in effect, we had international coal prices being unilaterally re-set on us in February.” Even so, total sales topped $1 billion for the first time, although the company’s performance in the current financial year will not be as strong. Chairman John Palmer says “I am not giving any guidelines today, because the economic and pricing environment is too volatile to give useful numbers. There has been a firming in coal trading of recent months and that will be positive.”

Palmer and Elder also indicated diesel production is perhaps the most attractive manufacturing option from lignite coal gasification plans, although the company has publicly highlighted the potential to invest as much as $US1bn on a lignite-to-urea plant in Southland. Production of both could meet domestic demand for centuries to come, while also providing new export revenues, because of the large size of the low-grade lignite feedstock available.

Meanwhile, Solid Energy’s Statement of Corporate Intent indicates commercialisation of coal-seam gas from the company’s Huntly coal mines will proceed over the next two years. While total production over the forecast period is small at less than 0.5 PJs annually, its New Energy GM Brett Gamble, says there is potential to be selling as much as 5PJs annually in the medium term, depending on gas prices.

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