Media Release

Record Year for Coal Producer

Record exports, an upturn in export prices with a lower US dollar exchange rate and a dry year in New Zealand for hydro-electricity generation, combined to produce an after-tax surplus of $38.1 million for the 2001/02 financial year for coal producer and exporter, Solid Energy New Zealand Ltd. This is a 535% increase on the previous year's profit of $6 million. The company paid no tax due to carry forward tax losses.

Total sales for the year were 3.35 million tonnes, up 13% on last year (2.97 million tonnes), while sales revenues totaled a record $264 million, a 21% increase on 2001 ($219 million). Exports reached record levels for the second successive year, with 1.8 million tonnes sold to international customers, up 8% on the previous year (1.66 million tonnes). Sales within New Zealand also reached record levels at 1.55 million tonnes, a 19% increase on the previous year (1.3 million tonnes) and driven by the higher use of coal for electricity generation during the dry 2001 winter.

As a result of the company's strong financial performance it has been able to repay in full the $42 million subordinated loan, plus interest, provided by its shareholder, the Government, in September 1999. Since the end of the financial year the company has also delivered the last of the unprofitable foreign exchange contracts entered into in 1997.

Chairman, Tim Saunders, comments: "Perhaps the most pleasing aspect of Solid Energy's very good performance is that the first year of the company's recently developed long-term plan (20 years) was achieved in full. This comprehensive market-driven plan forms the basis for measuring the company's on-going progress. Full credit is due to the company management and staff for this fine effort.

"The 2001/02 year clearly marks the company's recovery from the weakened financial position of the late 1990s. While equity as a portion of total assets remains low, due to the shareholder loan repayment, retention of profit in the short to medium term will allow a steady recovery of balance sheet strength to more acceptable levels for a business of this nature.

"During the last four years the company's financial position has forced serious under-investment in mine development and available coal reserve levels have declined fast. To ensure continuity of supply to customers, an average of $50 million of capital investment in existing and new mines is required annually in coming years. Current profit levels and cash returns must be sustained and improved to further justify and support this investment."

Chief Executive, Dr Don Elder, adds: "Our mining operations performed well in the year with record production volumes coming from the Stockton and Strongman export mines, while an upwards spike in US dollar export prices boosted sales revenue. However this rise has already reversed with thermal prices in particular falling sharply. The widely anticipated partial recovery in the New Zealand dollar commenced later and more slowly than expected during the year, further boosting export revenue above expectations.

"Around 45% of New Zealand sales (702,000 tonnes) were to New Zealand Steel's Glenbrook plant. Genesis Power Ltd required 341,000 tonnes (22%) for electricity generation at Huntly Power Station, as a result of the dry 2001 winter. Sales in the South Island to the dairy processing industry also grew steadily.

Export Outlook:

Over 80% of Solid Energy's current exports is premium quality coking coal for steelmaking, with a small quantity of unique, very high quality coal for specialist product markets such as silicon metal manufacturing or activated carbon production. The balance is sold to thermal (electricity) customers.

Dr Elder adds: "We expect a further growth in exports in the current year to 2.1 million tonnes, with most expansion coming from the newly reopened Spring Creek Underground Mine, provided rail capacity and performance is able to support this. If rail transportation constraints can be removed - either by affordable rail capacity from the West Coast to Lyttelton or by alternative export routes from West Coast ports - mine expansions and new mine openings will support continued export growth beyond 2003, at 10-20% annually to around 4 million tonnes by 2008.

"However the long-term trend in real prices for all internationally traded coal remains downwards and with most of the company's reserves in thermal coal, the average revenue received per tonne will fall even faster. Continued productivity and cost improvements will have to be achieved in both mining and transportation to support this growth."

New Zealand Outlook:

"New Zealand has enough coal to support its economy for over 1,000 years - 10 billion tonnes which is being used at the rate of 4 million tonnes per annum. New coal-based electricity generation could maintain the wholesale electricity rate at near current prices - 5 to 6c/kWh - for hundreds of years. Coal is already the lowest cost option for almost all new electricity generation in the future. Thousands of industrial customers, including most of the country's largest manufacturers, currently have no cost-effective alternative to coal as their primary source of energy. The key issue is how can we best and most responsibly use coal to support the country's economic growth and competitiveness during New Zealand's transition to a fully renewable energy economy.

"In the short to medium term, unless external constraints are applied that would significantly increase the cost of energy - or there are other major changes in New Zealand's supply and demand situation - coal use, the lowest cost option, is likely to increase from around 2 million tonnes per annum at present to about 4 million tonnes by 2010 and 7 million tonnes by 2020."

"The challenge for the coal industry and its customers is to earn the continued right to mine and use coal. Solid Energy has already embarked on an ambitious environmental programme across its operations and is committed to spending, at current estimates, $35 million to rehabilitate and decommission former and existing mine sites.

"We are also working with international researchers to adapt "clean coal technologies" available overseas, to New Zealand conditions. These increase the efficiency of coal-based electricity generation from 25-40% to 50% plus and pollutant emissions can be reduced to near zero," said Dr Elder. "With these and other initiatives, Solid Energy believes coal can and will fill its role as a key driver of New Zealand's economic growth for the next 20 years and beyond."

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