9 Oct 2015

Huntly axing likely a one-off says Solid Energy

6:37 am on 9 October 2015

Solid Energy is optimistic that yesterday's axing of its underground coal mine at Huntly East will be the only one of its kind.

Acting CEO Tony King left and board chair Andy Coupe.

Huntly East acting CEO Tony King (left) and board chair Andy Coupe. Photo: RNZ / Kim Baker Wilson

It believes its other assets are salvageable, though with varying degrees of health.

Production at Huntly was halted yesterday and Solid Energy's board believes final closure is almost inevitable.

A Huntly East worker leaving the meeting with Solid Energy management.

A Huntly East worker leaving the meeting with Solid Energy management. Photo: RNZ / Kim Baker Wilson

Chairman Andy Coupe is optimistic Huntly will be the only Solid Energy mine to suffer that fate.

"This is the only mining asset where we don't believe coal can be extracted and supplied to the market at a profit," he said.

Mr Coupe said Huntly East was losing $500,000 a month, which was unsustainable.

Though the board had given workers the chance to comment on the proposal to shut down the mine, he believed closure in the end was virtually inevitable.

Solid Energy has other mines, and Mr Coupe said they were unlikely to suffer the same fate as Huntly.

"We believe there is a market (for other mines)," he said.

"We believe the North Island and South Island assets are easily saleable.

"There have been a number of inward inquiries but I am sure you have heard the expression tyre kickers. It is hard to know at this stage who is interested and who is not."

Huntly East mine.

Photo: RNZ / Kim Baker Wilson

Further details will be clear when Solid Energy appoints a commercial bank to actually handle the sales.

Soon afterwards, it will be known whether the company will achieve its goal of paying 35 to 40 percent of a $400 million debt.

Mr Coupe remains optimistic, but a mining expert in Australia warns it won't be easy.

Daniel Morgan analyses global resources for UBS and said many coal mines were already on the market worldwide.

"There are more sellers of coal assets than buyers," he said.

"There are transactions occurring. We saw one in Australia last week with the sale of the Bengalla coal mine - or the Rio Tinto stake in it - to New Hope.

"There are people looking but the amount of assets out there that they can choose is pretty vast," said Mr Morgan.

The underlying reasons for these troubles are a retreat from energy buying by China and a flooding of the US market with cheap natural gas, which has displaces coal, leaving huge stockpiles languishing, unwanted.

A further problem for Huntly was Genesis Energy's decision not to buy 670,000 tonnes of coal which it had agreed on.

It was able to quit this contract when Solid Energy went into voluntary administration, and that company's acting chief executive Tony King said it hastened the mine's downfall.

These events led to 65 staff being made redundant yesterday, three managers being kept on, and 15 people being hired on fixed term contracts to make the mine safe.

They will do that by flooding the mine to thwart any future explosion from a build-up of gas, and then sealing off the mine to keep people out.

Get the RNZ app

for ad-free news and current affairs