Record coal production and an after-tax profit increase of more than 50% by state-owned enterprise Solid Energy were overshadowed by expectations of a second-half trading downturn because of weakening international coal prices.
Coal production was put under scrutiny when Solid Energy's Spring Creek underground mine, the largest on the West Coast and employing 230 staff, was closed on Monday by the Department of Labour under a "prohibition notice", because of three incidents that triggered multiple safety controls.
During the past three weeks, a diesel generator had caught fire and emitted high concentrations of carbon monoxide into the mine; a main fan had tripped with no alert to management for 90 minutes; and an underground auxiliary fan had tripped on two consecutive days but did not, as designed, stop a mining machine.
No timeframe was given for reopening but, as Spring Creek was a development mine, it was not expected to affect full-year results, the company said.
Solid Energy is one of four state-owned enterprises the Government is readying for a partial share float and, despite the toughening trading outlook, brokers are upbeat on its financial performance amid market volatility.
Solid Energy paid a $30 million dividend at the end of September.
Solid Energy's six-month trading to December booked a $70.3 million profit, compared to $45.2 million the year before, from revenue of $538 million. Coal production set a first-half record, up 9% at 2.36 million tonnes, chairman John Palmer said in a statement yesterday.
Craigs Investment Partners broker Peter McIntyre said the result was "solid".
The company had benefited from price rises while, like all mining companies, battling a high dollar and increasing staffing costs.
"This is a solid result, when considering it is going into a state-owned enterprise [partial share] sale," he said.
Major contributors to the positive result were three coal shipments from Lyttelton that were deferred because of the earthquakes and were worth almost $20 million in earnings before interest and tax, strong global prices and good production from the open-cast Stockton mine, up 8% at 871,000 tonnes, Mr Palmer said.
International coal prices were initially underpinned by the Queensland floods, which interrupted global supply, but then prices began falling because of weakening world markets.
"The volatile global economic environment put volumes and prices under increasing pressure by the end of the half year.
We expect these conditions to continue in the short to medium term.
"This, coupled with a high New Zealand dollar, will significantly reduce the prices and revenue we receive in New Zealand dollars in the second half of the 2012 financial year," Mr Palmer said.
The high New Zealand dollar, while partially offset by hedging, ultimately saw a $12.1 million decline in earnings before interest and tax for the six-month period.
Debt gearing had increased from 26% of total equity a year ago to 31%. Total debt was now at $245 million, in $175 million of bank debt and medium-term notes worth $70 million.
Bank facilities of $115 million, which were to expire next November, were extended over periods up to six years, and an additional $100 million of new facilities is under way, for periods up to five years.
"Funding costs have increased due to increased debt levels," Mr Palmer said.
Mr McIntyre said the increasing debt ratio, for either the company or in view of the partial share sale, was "not significant" and was not overgeared.
"It's how the debt is applied; it will be to deliver higher returns on equity and to increase revenue," Mr McIntyre said, citing increased capital and exploration expenditure.
Expected milestones for the company during the present six-month period include commissioning the Mataura domestic-scale $29 million briquette plant at Mataura, producing the inaugural "syngas" from its $22 million pilot underground coal gasification plant in Waikato and producing electricity for the national grid from its $27 million Huntly coal seam gas demonstration plant.
Exploration on the West Coast had been increasedp, rising by $4.9 million to $135.7 million for the period.
Capital investment for the half totalled $77.5 million, compared to $48.3 million the year before, comprising $47.8 million for sustaining ongoing operations and $29.7 million towards growth initiatives.
Australia's latest mining boom is causing staffing problems for Solid Energy because of the "overheated" Australian labour market, with underground production growth "constrained" by 20% employee turnover. This is being addressed by increasing trainee intakes and bonding agreements to slow staff turnover.
