Solid Energy to cut a quarter of its Stockton mine workforce

Friday 6th June 2014

State-owned coal miner Solid Energy has announced redundancies for just over a quarter of its workforce at the open-cast Stockton mine, on the West Coast near Westport, in response to a prolonged period of depressed global prices for the coking coal mined at the site for use in steel production.

Newly appointed chief executive Dan Clifford told BusinessDesk the moves on their own were "not quite" enough to return Stockton to profitability on an earnings before interest, tax, depreciation, amortisation and movements in the value of financial instruments basis.

"There are more efficiencies that we need to continue to work through", although today's announcements were a "big step forward in getting to a cash neutral position" in the export-oriented coking coal part of the business, which accounts for about half of Solid Energy's workforce.

Some 132 of the mine's 521 positions are expected to be made redundant as the mine reduces annual output from 1.9 million tonnes to 1.4 million tonnes in a move expected to last at least two or three years, the newly appointed chief executive, Dan Clifford, said in a statement today.

“On current pricing projections, we have to minimise our losses by reducing costs so that we can keep the mine operating," said Clifford, whose previous employer, Australian miner Glencore Xstrata is also reducing production and its workforce as Australian coking coal mines go through similar adjustments, brought on in part by lower economic growth in China, which kept steel demand alive after the global financial crisis.

“We feel for the staff and their families, and for the wider Westport community, who will be affected by this, but by reducing activity we believe we can keep the operation viable with the continued benefits for the community," said Clifford in a statement. The redundancies will target 35 management, technical, support and administration roles, and 102 miners' jobs.

An additional 70 or so contractor roles will be lost as the mine brings activity in-house, leaving around 50 contractors on-site instead of 120 today.

Non-essential development work will stop, mining will focus on lower cost pits, and most mining will occur during daylight hours. Changes to rosters and training to increase staff ability to perform multiple tasks are also under way.

Solid Energy went through a financial crisis in 2012 and 2013 as plummeting coking coal prices undid the economics of a business that had expanded rapidly into several new areas of potential, including bio-fuels, wood pellet burner manufacturing, and exploitation of low value lignite coal deposits for fuel and fertiliser.

"While Solid Energy’s domestic business has been stabilised, the export business has continued to see falling prices from the 2011 highs of US$330/tonne," said Clifford who took over as chief executive last month. "Even more recently the price has continued to decline with the quarterly benchmark price for hard coking coal falling from US$143/tonne for the January to March quarter, to US$120/tonne for the current quarter while the spot price has been sitting at about US$113/tonne for the last two months.

“While we are planning to continue with reduced production and reduced staffing levels for the next two to three years, we will still be able to meet our long-term customer contracts while retaining our options to respond to changes in the market.”

Solid Energy is proposing a two-week consultation period with Stockton employees, followed by confirmation of the structure and a selection process for contested and vacant roles with the aim of implementing the new rosters by the end of July.

BusinessDesk.co.nz

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