Media Release

Unexpected Surplus enables Coal Producer to make Loan Repayment

A weak New Zealand dollar, combined with a short-lived spike in export prices, and an unusually dry New Zealand winter increasing demand for coal, contributed to an unexpectedly high after-tax surplus of $15.9 million for the six months ended 31 December 2001 for coal producer and exporter, Solid Energy New Zealand Ltd.

As a result Solid Energy has been able to make a $20 million part repayment of the subordinated loan provided by its shareholder, the Government, in September 1999.

The favourable result will help the company fund significant upcoming capital investment in new or expanded mines needed to meet increasing export and New Zealand demand for coal.

The half-year result compares with a profit of $1.84 million for the same period in the previous financial year and a surplus of $6 million for the 12 months ended 30 June 2001. Sales reached a half-year record of $134 million (1.67 million tonnes) compared with $112 million (1.52 million tonnes) in the same period last year, and $219 million (2.97 million tonnes) in the 2000/01 financial year. Export volumes for the half-year were 0.86 million tonnes, in line with the same period in the previous year.

Solid Energy Chairman, Tim Saunders comments: "A number of factors combined to produce this unexpectedly strong result for the half year, particularly last year's dry winter and the resulting low levels in the South Island hydro lakes which significantly increased sales for electricity generation. In addition export revenues were boosted when the anticipated rise in the New Zealand dollar started later and more slowly than forecast and coincided with a spike in US dollar export prices. Unfortunately this spike was short-lived and prices have already dropped back towards their long-term downwards trend lines.

"Although the company's historical foreign exchange portfolio that has dogged the company's recent performance had a far lower impact in the half year, substantial foreign exchange contracts remain and will continue to negatively affect results well into the next financial year."

Chief Executive Officer, Dr Don Elder, adds that while the half-year performance is pleasing it will be difficult to sustain in the current climate of falling long-term export prices and the gradual appreciation in value of the New Zealand dollar.

"Given the company's financial performance in recent years we have adopted a conservative approach to securing our long-term sustainable future. Our priority is to undertake crucial capital investment, alongside our business partners, to replace our diminishing developed coal reserves. We have to guard against the volatility in our business by achieving increased economies of scale in production and distribution facilities," Dr Elder said.

"We are currently undertaking key initiatives that will decide the long term future of the company: expansion of our Stockton, Huntly East and Terrace Mines; a new opencast mine near Greymouth and feasibility studies for a replacement mine at Ohai. We also hope to reopen Spring Creek underground mine near Greymouth, which was closed in February 2000 when unforeseen geological conditions were encountered.

"To meet demand for our coal both internationally and within New Zealand we need to increase production, but we must do this economically and we will have to invest significantly in training and development programmes to ensure that we have a workforce able to operate at the leading edge of safe mining and coal technology," said Don Elder.

"We also making substantial provisions for developing and implementing plans to decommission and rehabilitate our own mines and a number of former state coal mines. For example in the coming year we are looking to carry out further work at the former Wangaloa mine, near Balclutha, before the area is opened to the public, as well as starting work on developing the old Weavers opencast mine near Huntly for recreational use."

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