Sydney, 24 September (Argus) — State-controlled New Zealand coal producer Solid Energy plans to put its Spring Creek semi-soft coking coal mine onto a care and maintenance programme and reduce output at its Huntly East coking coal mine after falling coking coal prices hit profitability.
The decisions follow a review of the mines started last month, after Solid Energy reported a NZ$71.4mn ($58.80/t) write-down in the value of its coal mines.
The firm will reduce development and coal extraction at the Huntly East mine to ensure its immediate financial viability, cutting the workforce from 234 positions to 171. The mine will then produce at normal levels for five days a week rather than seven. The 400,000 t/yr mine has about 500,000t of developed reserves in coal blocks that are either fully set up or almost ready for mining.
Any decision to increase mining or invest in longer-term development will depend on the company securing satisfactory long-term contracts with major customers on the country's North Island such as New Zealand Steel. Almost all of Huntly East mine output is supplied to New Zealand Steel's mill at Glenbrook. The decision will not immediately affect the company's ability to supply New Zealand Steel, which is owned by Australian steel producer Bluescope. The two companies are in talks on agreeing a new supply agreement.
All underground work at the Spring Creek mine on the South island will remain suspended, Solid Energy chief executive Don Elder said. The Spring Creek mine has not been profitable for some time and has lost more than NZ$100mn since 2007. The mine has been in a development phase since the end of 2011 with minimal coal production and has cost the company NZ$50mn during this time, Solid Energy chairman Mark Ford said. Spring Creek would not have returned to full production until early next year and would have required a further investment of NZ$40mn-$70mn to do so.
The mine has performed below expectations in recent years as a result of more complex geology being encountered, higher costs and slower development progress. “The price for Spring Creek's semi-soft coking coal would need to be somewhere from NZ$180-200/t for the operation to deliver a profit and pay off the investment made in it,” Ford said. “International semi-soft contracts are now being made at around NZ$120/t.”
The mine still has potential in a stronger international market for steelmaking coal, particularly as a blendstock for some of production from Solid Energy's Stockton mine or as a specialty product, Ford said. “Placing the mine into care and maintenance would allow options for the future which include waiting for the market to recover, reviewing future options to restart the operation and selling or closing the mine,” he said.
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