The real cause for Solid Energy mass redundancies?
On 16 August, Solid Energy undertook a review of it’s operations and workforce. CEO, Dr Don Elder, announced,
“While many in the industry still expect demand, driven by Asia, to pick up again strongly sometime in 2013 Solid Energy needs to plan to withstand these market conditions for at least the next 12 months and possibly for 24 months or longer.” he says. “As a consequence, we are reviewing all areas of our business, including current and future operations, all fixed and variable costs, and the values of some of our assets, which will result in us taking significant impairments. Our aim is to preserve cash through reduced spending while, as far as possible, maintaining our longer-term value opportunities.”
By 29 August, Solid Energy announced 140 jobs to go and a suspension of operations at Spring Creek mine on the West Coast. A further 123 jobs were to be cut at Huntly East Mine in Waikato.
The following day, that number had risen to 250 job losses on the west Coast, and as one Greymouth retailer put it,
” Two-hundred-and-fifty jobs, we’ve got a population of 8000 – it’s probably the equivalent of 40,000 people in Auckland jobs getting affected, so that puts it in perspective. “
On the same day, Solid Energy reported a “loss” of NZ$40.2 million in the year to June 30, 2012, compared to a profit of NZ$87.2 million in 2011. (More on this shortly.)
No one can rationally argue that job losses on this scale, with ensuing loss of wages and company spending, will have a devastating impact of the West Coast economy. The losses will cause incalculable harm.
Solid Energy has attempted to justify redundancies by pointing to a drop in international coal prices; a fall in demand from China; and a $40.2 million “loss” in profits.
Two of the above reasons have a degree of merit – the third reason has been mis-represented to the public.
International Coal Prices
Coal prices have indeed dropped.
From a recent high of NZ$185.47 per metric tonne in January 2011 – to NZ$113.33 at the end of July, this year. This is a drop of NZ$72.14 per metric tonne.
However the July 2012 price (NZ$113.33 per metric tonne) is not much different to the November 2009 price of NZ$115.52 per metric tonne. As a result of the November 2009 low price, Solid Energy had minimal redundancies,
“There were 18 redundancies in the year at a cost of $367,050.”
That figure of 18 redundancies is in stark contrast to the 360 redundancies this year.
Demand from China
There is no doubt; demand for coal from China has dropped,
” Globally diversified miner Anglo American PLC said the global thermal coal market looks bearish in the short term, partly due to displacement of U.S. coal demand by shale gas and an economic slowdown in China, but it is still an attractive market over the medium to long term.
“In the short term, we will have a bearish market,” Norman Mbazima, chief executive of Anglo American’s Thermal Coal division, told analysts at a seminar. But “there is very good demand outlook for coal. Coal will continue to be the mainstay of electricity production in the world and this will underpin good prices into the future,” he said.
Gareth Griffiths, head of Anglo American’s Thermal Coal Marketing department, said that the main reason behind the recent collapse in thermal coal prices has been a slowdown in Chinese coal consumption growth.”
See: Anglo American – thermal-coal outlook bright (14 June 2012)
” Coal demand is also expected to be fragile amid a weak economic outlook for the rest of the year.
A Reuters poll forecasts this year to see the slowest full-year of economic growth since 1999 as demand for China’s factory goods falls due to the debt crisis in its biggest customer the European Union.
“The coal market will remain challenging,” said Ivan Lee, a coal analyst at Nomura Bank.
Chinese coal prices can only rebound if demand recovers considerably, which requires the manufacturing purchasing managers index (PMI) to rise above 50, economic growth to climb above 8 percent and power plants’ coal stocks to fall by half, Lee said.
The data, however, is not encouraging. The latest PMI showed China’s manufacturing sector contracted at its sharpest pace in nine months in August, with the index falling to 47.8 from 49.3 in July.
Even if China decided it needs more coal, which is unlikely, it will not seek it abroad as imports have become more expensive than domestic supplies, traders said.
Australian imports, based on the globalCOAL index, now cost around $3 per tonne more than Chinese prices, although some traders are selling blended material at lower rates. “
See: Reuters – Output cuts help steady China’s coal prices, outlook (29 August 2012)
Whilst this may impact on Solid Energy’s profits (as compared to this year and 2011), Solid Energy’s viability does not seem threatened.
The only threat to Solid Energy is it’s saleability. The more profit Solid Energy makes – the higher the share price when it is floated on the Stock Exchange. By contrast, the lower the the profit, the lower the share price.
Which may explain Bill English’s comment in the media item below, “English – Solid Energy not ready for sale”.
Solid Energy Profits
According to Solid Energy’s own Results Announcements 2012 report, the company’s income was actually better than the preceding year,
Good operating performance overtaken by asset write downs
• Trading performance was good in a deteriorating market with strong NZD. Underlying earnings were $99.7 million (2011: $86.2 million).
• Asset write downs of $110.6 million net of tax and other adjustments have resulted in a $40.2 million loss after tax (2011: $87.2 million).
In plain english (not the mumbled Prime Ministerial version), Solid Energy made an after-tax profit of $99.7 million – an increase from $86.2 million in 2011.
Employing a book-keeping, accountancy “trick”, Solid Energy reduced their own asset values by $110.6 million. (That’s like saying your house was worth $300,000 in 2011, but only $250,000 this year. You still have your house and you’re living in it – nothing else has changed. Only the theoretical valuation has ‘reduced’. Next year that valuation could rise back to $300,000 or even more or maybe less. That’s creative accountancy for you.)
The point is that Solid Energy’s profit rose from $86.2 million to $99.7 million.
In fact, Solid Energy’s revenue in 2012 was $978.4 million – almost a billion dollars – an 18% increase from the previous year.
“Good earnings” indeed!
Any “loss” by Solid Energy is there a paper loss only; an accounting mechanism to revalue assets. It’s profits remain unchanged.
Solid Energy therefore cannot rely on an imaginary “loss” to justify redundancies – because there was no loss.
It is noteworthy that Solid Energy’s decision to “mothball” Spring Creek mine and reduce staff at Spring Creek and Huntly follows one week on from this event,
Don Elder rejects all allegations that planned redundancies are a covert attempt to increase Solid Energy’s profitability by reducing it’s labour costs,
“This restructuring is not about increasing value, this is about saying `we have to do what we can afford to do.”
To which this blogger replies,
- There has been a downturn in international coal prices, and,
- Despite that, Solid Energy is profitable and it’s 2012 revenue exceeded last year’s, and,
- Bill English stated on 21 August that “We wouldn’t be planning to float it [Solid Energy] any time soon”, and,
- A week later Solid Energy announced 250 redundancies and the closure of Spring Creek mine and,
- By contrast, there were only 18 redundancies in November 2009, even though the price per metric tonne was similar.
Coincidence? I think not.
Despite Elder’s protestations to the contrary, this blogger has no doubt whatsoever that Solid Energy employers and the entire West Coast are paying dearly for National’s privatisation agenda.
There are some very dirty back room deals going on, and the wafting smell ain’t methane escaping from West Coast mines.
= fs =
For a better New Zealand…
~ Cleaner rivers
~ No deep-sea oil drilling
~ Less on Roads - more on Rail
~ A Living wage at $19.25/hr
~ Marriage equality - Yay! Got that one!
~ Strong, effective Unions
~ No secret free-trade deals
~ Breakfast/lunches in our schools
~ Introducing Civics into our school curriculum
~ Cut back on the liquor industry
~ A fairer, progressive tax system
~ Fully funded, free healthcare
~ Ditto for education, including Tertiary
~ Fund Pharmac for Pompe's Disease medication & other 'orphan' drugs
~ No state asset sales!
~ Rebuild public TV broadcasting!
~ Keeping farms in local ownership
~ Reduce poverty, like we reduced the toll for road-fatalities
~ Jobs, Jobs, Jobs!
~ Being nice to each other
- Climate Change Minister Paula Bennett revealed
- National – Party 4 Sale?
- That was Then, This is Now #28 – John Key on transparency
- When National is under attack – Deflect, deflect, deflect!
- National MP Mark Mitchell and his breath-taking display of arrogance
- The Mendacities of Mr Key # 16: The sale of Kiwibank eight years in the planning?
- Flag thoughts and settling dust – Dedicated to our esteemed Dear Leader and Audrey Young
- When Fact Follows Fiction – The Weird World of U.S. Politics
- 2016 – Ongoing jobless tally
- John Key is a principled man – except when a photo op arises (A Photo Essay)
- Coming soon: A terror alert near you!
- Dear Michael Cullen: the GCSB is not International Rescue!
- National’s Food In Schools programme reveals depth of child poverty in New Zealand
- Letter to the editor – So this is ‘job creation’ by foreign ownership?
- Mediawork’s Julie Christie at war with NZ on Air – Possible conflict of interest as first reported last year on TDB
- Letter to the editor: Setting it straight on user-pays in tertiary education
- Letter to the editor – In response to Orwellian National Supporters
- The Mendacities of Mr Key # 16: No one deserves a free tertiary education (except my mates and me)
- Citizens present petition at Governor General’s gate
- Letter to the Editor: Steven Joyce – Hypocrite of the Year
- Hekia Parata breaks law – ignores Official Information Act – claims emails “not found” – and it gets worse!
- Dumber and dumber, scarier and scarier
- The Mendacities of Mr Key # 15: John Key lies to NZ on consultation and ratification of TPPA
- David Bowie – returning to the stars
- Letter to the Editor – Rightwinger caught out parroting his own garbage
- The Best Laid Plans of Mice, Men, and Mechanoids…
- Letter to the editor – Donald Trump and the lessons of history
- Welcome back, Collins
- Hekia Parata breaks law – ignores Official Information Act
- Media stories of the Week: Police Commissioner Mike Bush on dubious police practices
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- 417,331 hits