Solid Energy New Zealand Ltd ANNUAL REPORT 2012 Solid Energy, a state-owned enterprise, is a coal-focused natural resources business providing coal-based energy and other products to New Zealand We are committed to zero harm; our and international markets. lost-time injury frequency rate has dropped from 20 to 3.4 in the last 10 years. *(frequency rate per million hours worked)
Mining New Zealand’s very extensive coal resources (over 10 billion tonnes) – opencast and underground – is increasingly difficult in New Zealand’s challenging geographic and geological conditions. Solid Energy is bringing to New Zealand, and developing ourselves, technology that will allow us to utilise these resources to provide secure, affordable and environmentally acceptable energy and other products that benefit New Zealand’s economy.
We aim to have a net positive effect on the New Zealand environment every year.
PUKETIRINI (Front Cover) Solid Energy has developed the Puketirini recreation area on the site of the former Weaver’s Opencast Mine which was mined from 1958 to 1993. Rehabilitation has transformed the former mine pit into a 65 metre deep lake bordered by 90 hectares of wetlands and park.
We have planted about 30,000 plants - a mixture of native trees, exotics, flaxes, grasses and shrubs – around the lake, establishing a diverse ecosystem to help maintain the lake’s exceptional water quality and create a diverse wildlife habitat. A wetland created in a shallower area to the north west of the lake has encouraged an abundance of fish and bird life.
More than 3.5 km of tracks for walking, cross country and mountain biking, meander through the park and around the lake while picnic spots and swimming beaches are being created for community enjoyment.
Puketirini opened to the public in 2003. The Waikato District Council took ownership in 2007 and, with contributions from volunteer groups and local companies, has added boat ramps, jetties, car parking, eco-toilets and other recreational amenities. Contents
02 2012 Year in Review
04 Chairman’s Report
04 Chief Executive Officer’s Report
06 Operating and Financial Review
09 2012 Business Performance
10 Resources
13 Coal Operations
15 Lignite Conversion
16 Gas Developments
17 Renewable Energy
18 Health & Safety
20 Our People
More than 60% of our coal is 21 Our Stakeholders used as an essential component of steel production. 22 Environment
24 The Board of Solid Energy
25 Governance
29 Employee Remuneration
31 Financial Statements
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG1 2012 Year in Review 2011 2012
SEPTEMBER 2011 FEBRUARY 2012 MAY 2012 Work starts on Mataura domestic-scale Buy back of Cargill’s 49% share of Conditional sale and purchase briquette plant. Spring Creek Mining Company, owner of agreement signed to buy Pike River Spring Creek Mine. assets. Purchase completed in DECEMBER 2011 July 2012. Contractor operations suspended at MARCH 2012 Ohai mining site, Southland, due to First coal produced at Reddale Coal seam gas production proven at safety concerns. Work resumes in Opencast Mine, Reefton. Huntly site; development focus moves to January 2012 following a review, but 900 PJ resource in Taranaki. we terminate contract in March after Nature’s Flame closes Rolleston wood another incident and take over the pellet plant. JUNE 2012 work ourselves. Prohibition Notice stops Huntly Operations suspended at Spring Creek East Mine operations for five days. Coal production from the Stockton Mine, Greymouth, following Prohibition Company stresses never any safety risk Plateau reaches 50 million tonnes Notice relating to three safety incidents. from accumulation of methane in a since first commercial coal produced Notice lifted after three days, but recently-mined area we were managing by Westport Coal Company’s Millerton operations remain on hold for two within our standards. Mine in 1896. weeks while we complete our own incident investigations. Sale completed of Terrace Coal Mine assets at Reefton. APRIL 2012 Huntly Underground Coal Gasification JANUARY 2012 pilot plant started successfully and Development work on new mining area producing syngas from coal. starts at Spring Creek Mine.
FINANCIAL PERFORMANCE 2012 2011 % CHANGE
Revenue $978 million $829 million 18%
Earnings before Interest and Tax (EBIT) $(27.7) million $137 million -120%
Net Profit after Taxation (NPAT) $(40.2) million $87.2 million -146%
Total Underlying Earnings adjustments (net of tax) $139.9 million $(1.0) million -
Underlying Earnings after Tax $99.7 million $86.2 million 16%
Net Cashflow from Operating Activities $142 million $129 million 10%
Shareholders’ Funds $423 million $519 million -18%
Dividends Paid $30 million $20 million -
PG2 FINANCIAL
REVENUE ($ MILLION) NEW ZEALAND EXPORT NET CASHFLOW FROM OPERATING ACTIVITIES ($ MILLION) 1000 150
800 120
600 90 60 400 30 200 0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 *(70;(3,4736@,+ 4033065 EQUITY NET DEBT EBITDA ($ MILLION) 800 250 700 200 600 500 150 400 100 300 200 50 100 0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 NET PROFIT AFTER TAX ($ MILLION) 9,;<9565:/(9,/63+,9:»-<5+: 120 60 100 50 80 40 60 40 30 20 20 0 10 -20 -40 0 -60 -10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 SALES SUSTAINABILITY
COAL SOLD (MILLION TONNES) NEW ZEALAND EXPORT (33051<9@-9,8<,5*@9(;, 5 50 4 40 3 30 2 20 1 10 0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: No data available prior to 2006 >66+7,33,;::63+;/6<:(5+;655,: (55<(35,;,5=09654,5;(3,--,*; 50 0 -50 40 -100 30 -150 20 -200 -250 10 -300 0 -350 Note: Wood pellet business Note: Wood 2003 acquired
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 system Note: Measurement commenced 2003 )06+0,:,3:63+403306530;9,:(:) :;(--5<4),9:7,94(5,5;(5+-0?,+;,94 2.5 2000
2.0 1500 1.5 1000 1.0 500 0.5 0.0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: Biodiesel business 2007 acquired 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG3 Chairman’s Report
In a global coal market that deteriorated throughout the year, Solid Energy’s underlying earnings of $99.7 million (2011: $86.2 million) for the year ended 30 June 2012 was a good result. However the company’s decision to book total asset impairments of $110.6 million, net of tax, dominated by underground mines as their economics reversed in the falling market, resulted in a loss of $40.2 million (2011: profit of $87.2 million).
The company paid a dividend of $30 optimising production and minimising Despite this, I am very much looking million on 30 September 2011. Given costs to generate additional cash. forward to the challenges the business the volatility and continued weakness of Inevitably these measures have also offers. I would like to acknowledge the international coal markets, the company included proposals for restructuring the contribution to the company of Adrienne has not declared a further dividend for organisation that will result in job losses Young-Cooper, who retired at the end of the year. across the company. April after more than nine years’ service as a Director and my predecessor, John I take over as Chairman of the company I acknowledge the impact that this Palmer, who retired as Chairman at the at a very challenging and difficult time will have on a number of people, their end of August after six years. and I will be working closely with the families and local communities. We Board and management to minimise the will do all we can to help affected impact of the market on the business employees find alternative employment, and to ensure we can come through working with companies involved in this downturn in good shape. Post the Christchurch rebuild and exploring year end, the company announced a opportunities here and in Australia in Mark Ford number of measures to minimise the other similar or related industries. Chairman impact of the market with a focus on
Chief Executive Officer’s Report
Revenue of $978.4 million was up 18% on the previous year (2011: $828.7 million), the second-highest annual revenue (2009: $979.5 million). Coal sales were up 13% to 4.6 million tonnes (Mt) (2011: 4.1 Mt) boosted by product stockpiled due to shipping delays at the Port of Lyttelton following the Canterbury earthquakes in June 2011. Coal exports of 2.4 Mt were up 20% on the previous year (2011: 2.0 Mt) with New Zealand coal sales up 6% at 2.2 Mt (2011: 2.1 Mt).
Throughout 2011 and early 2012 US time our Spring Creek Underground had been developed successfully at dollar prices for hard coking coal, our Mine was in the middle of a long period Huntly but were subject to weak gas primary export product had declined over of development into a new mining area, market prices. 40% from early 2011 highs. In 2012, with little coal production and heavy prices ranged from a high of US$300/ cash demand. In response to these further worsening tonne for hard coking coal at the start of market conditions post balance date, the financial year, to a low of US$206/ During the year we commenced we have scaled back operations at tonne, then up to US$225 at year end. organisational changes to focus the Huntly East Underground Mine, are The average US dollar price received in business more tightly on a narrowed reviewing the future of Spring Creek the first half of the year was up 31% on the strategy. In July, in response to the Underground Mine and increased the prior year, but softened to up 9% overall major global coal market downturn, depth of restructuring in other areas for the full year. Average New Zealand we began to implement additional of the business. Based on the revised dollar prices were up 6% for the full year. strategic and structural changes across outlook for these two underground mines Unlike during previous downturns, the the business to generate and preserve we took substantial impairments on the New Zealand dollar remained high and near-term cash, while retaining capability asset values of each. appreciated, further weakening our New and future growth options wherever Zealand dollar revenues. possible. We decided to cease further The result for the 2012 year, and the investment in and to divest or separate major strategic and structural changes Post balance date, from early July, our biofuel and wood pellet businesses to our business already in progress and Chinese steelmaking demand fell away where market premiums, driven initially continuing, reflect all these factors. suddenly and dramatically and prices by international and domestic policies, plunged over 30%, again with no fall have dissipated. We stopped investment in the New Zealand dollar. At the same in our coal seam gas resources, which
PG4 BUSINESS PERFORMANCE by 13% to 4.6 Mt. During the year we strong New Zealand dollar. Despite this, Cashflows from operating activities continued significant improvements in major companies in our sector remain were up 10% to $142.2 million (2011: safety performance. Lost-time injury bullish on the long-term due to continuing $129 million) of which $81 million frequency rates, all injury frequency rates, global urbanisation and industrialisation, was reinvested to sustain and grow and injury severity rates all decreased and plan to continue investing on this the business. substantially. These changes reflect basis in a world where production of a combination of sustained initiatives most commodities is getting harder and During the year, we met a number of key throughout the business and hard work more expensive. milestones in delivering our long-term by all staff. We were therefore very growth strategy. Our two major opencast disappointed that one of our workers While operating cashflows have been mines, Stockton (export coking coal) and suffered a significant injury at Spring strong, our capital investments since Rotowaro (North Island domestic supply) Creek Mine, post year end in July 2012. 2009, including the $120 million both performed well and exceeded plan We had no significant environmental investment in the coal processing plant following several years of work to improve incidents, and achieved a substantial at Stockton Mine, significant on-going operational efficiencies and productivity. positive net environmental effect during sustaining capital at Stockton, and Our other opencast mines, including the year, after remaining unchanged in investment during the past year at our New Vale near Gore and several new but the previous year due to an expanded underground mines, have increased small opencast mines, also performed mine footprint as we extended our the company’s debt by $257 million. well. We have struggled to maintain opencast mining operations. We are managing the business actively coal exports through the devastating to minimise the impacts of current effects of the Christchurch earthquakes PIKE RIVER markets and to maintain our strong on our export supply chain, particularly In July 2012, we completed the purchase performance of the past year across at Lyttelton Port. However outstanding of the assets of Pike River Coal (in most areas of our business. Our focus work, particularly by our logistics and Receivership) Ltd. We entered into a is generating and preserving cash, and marketing teams with our rail and port formal agreement with the Government, implementing the major restructuring partners and customers, enabled us to and made firm commitments to the changes begun during the previous year, achieve not only plan, but above plan, families, regarding our future activities both to deliver our refocused business export volumes in the year. at the site including future recovery strategy effectively and efficiently, and to of bodies of the 29 men who died in manage through this difficult period while Our $22 million underground coal explosions at the mine in November preserving core capability and future gasification pilot plant was commissioned 2010, if it is safe, technically feasible and business options. successfully and started producing financially credible to do so. Although we syngas in April 2012. The $29 million do not currently believe there is a safe My thanks to all our staff for their Mataura domestic-scale briquette plant is way to re-enter the abandoned workings continued commitment and outstanding about to start production. In May 2012, for body recovery, we remain in close work through this very difficult year we proved coal seam gas technology contact with the families and are sharing of major external constraints, from at our Huntly demonstration plant, with them our planning for an exploration earthquakes to market downturn. producing high-quality gas, converted to of the mine’s main entry drift. My thanks also to my management electricity on site and exported into the team and the Board for their support national grid. However the Huntly coal The Pike River resource has a high and leadership. seam gas resource is only about 40 PJ. mining cost and low market value on a We are closing the Huntly plant to focus standalone basis but has potential future future commercialisation in our Taranaki value within our overall portfolio of West field, where the resource is more than 20 Coast export coking coals. times larger, although we are seeking a new partner for this investment. OUTLOOK Unlike during the 2008 global financial While the final financial result for the crisis, when prices rebounded strongly, year after impairments is disappointing, we currently expect international coal Dr Don Elder we increased overall coal production for prices to remain weak for one to two Chief Executive Officer the year by 3% to 4.1 Mt and coal sales years, compounded by the continuing 30 August 2012
Coal ship leaving Lyttelton Port.
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG5 Operating and Financial Review
Operating Review COAL new mining area. The future of the mine pit in the Waikato contributed 68,000 Coal production for the year was up is now under review. tonnes during the year to complete trials 3% to 4.1 million tonnes (Mt) (2011: 4.0 with our North Island customers. First Mt) due mainly to strong performance Production at Huntly East Mine was coal from Reddale Mine was produced at Stockton Mine which recorded a down 10% for the year to 336,000 in March 2012 and 23,000 tonnes were 16% increase in annual production tonnes, due to harder mining conditions. produced in the year. to 1.87 Mt. Of this, more than 1 At Rotowaro Mine production was in Mt was produced by the Stockton line with last year at 1.2 Mt. At 318,000 RENEWABLE ENERGY coal processing and handling plant. tonnes, production at New Vale Mine Wood pellet production for the year Production at Spring Creek Mine was was up 6% for the year. decreased 9% to 42,000 tonnes. down 40% for the year to 240,000 Nature’s Flame closed its Rolleston plant tonnes with last coal extracted from the Small-scale mining at Ohai added in March 2012, to focus on its North mine’s Rapahoe Sector in January 2012. 35,000 tonnes for the year following the Island production. Biodiesel production Production significantly reduced during quantification of saleable coal during for the year was 2.0 million litres, up this period as we began developing a rehabilitation of the site. The Maramarua 15% for the year.
Production Performance 2012 COAL Opencast Operations
STOCKTON OPENCAST (THOUSAND TONNES) 96;6>(9667,5*(:;;/6<:(5+;655,: 2500 2500
2000 2000
1500 1500
1000 1000
500 500
0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
5,>=(3,67,5*(:;;/6<:(5+;655,: 6;/,967,5*(:;;/6<:(5+;655,: 600 700
500 600 500 400 400 300 300 200 200 100 100
0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Underground Operations HUNTLY EAST UNDERGROUND (THOUSAND TONNES) SPRING CREEK UNDERGROUND (THOUSAND TONNES) (3) 600 600
500 500
400 400
300 300
200 200
100 100
0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
PG6 RENEWABLE ENERGY
WOOD PELLETS (THOUSAND TONNES) (4) BIODIESEL (THOUSAND LITRES) (5) 50 2500
40 2000
30 1500
20 1000
10 500
0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Notes
1. Privately owned mine acquired in 2008. 2. Includes Ohai, Maramama, Reddale and Strongman Opencast mines. 3. Spring Creek Mine in development since January 2012. 4. Wood pellet business acquired in 2003. 5. Biodiesel business acquired in 2007.
Financial Review Net profit after tax for the year, after by thermal shipments as international exports to Europe due to lower New impairments, was a loss of $40.2 million, steel makers cut back on production Zealand dollar margins. Biodiesel sales down 146% from $87.2 million in the and stockpiled coal. Sales to all our main volumes of B100 were down 11% to 1.8 2011 financial year. export markets, India, Japan, South million litres (2011: 2.1 million litres). Africa and China increased slightly. Coal sales for the year were 4.6 Mt, up Prices and Foreign Exchange: The 13% on the previous year (2011: 4.1 Mt). New Zealand sales were up 6% on last combined effect of pricing and foreign Exports were 2.4 Mt, up 20% (2011: year to 2.2 Mt (2011: 2.1 Mt). Sales exchange increased EBIT by $44.6 2.0 million) boosted by three carryover to New Zealand Steel increased to million. International coal prices in coal shipments from the previous year 805,500 tonnes (2011: 617,400 tonnes) US dollars remained firm in the first which were delayed by the impact of the but dropped to Genesis Energy, for its quarter of the financial year supported June 2011 Canterbury earthquakes on Huntly Power Station, to 802,400 (2011: by residual impacts of the Queensland Lyttelton Port. These carryover volumes 901,800 tonnes). Coal sales in other floods in early 2011, but then fell by increased Earnings before Interest and sectors were in line with last year. almost 35% through the middle of Taxation (EBIT) by $19.8 million. Just the year. Overall, average USD prices over half our coal exports for the year Wood pellet sales volumes decreased received were up 6% on the previous were hard coking coal, a third semi-soft by 12% to 43,000 tonnes for the year year, increasing EBIT by $76.1 million. coking coal, with the balance made up (2011: 49,000 tonnes) as we scaled back
,?769;:(3,:)@ :(3,:)@,?769;4(92,; 5,>A,(3(5+*6(3 *6(3;@7, :(3,:)@:,*;69
SEMI-SOFT 30% JAPAN 26% ELECTRICITY 37% SOUTH AFRICA 10% COKING CEMENT 1% 55% STEEL 37% INDIA 49% DAIRY 11%
MEAT 5% CHINA 15% THERMAL 15% TIMBER PROCESSING 1% INDUSTRIAL PROCESSING 2% HEALTH 2% COMMERCIAL WHOLESALERS 3% HEATING 1%
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG7 The stronger New Zealand dollar against UNDERLYING EARNING ADJUSTMENTS the US dollar reduced EBIT by $31.5 million after hedging. YEAR ENDED 30 JUNE 2012 GROSS TAX EFFECT NET (NZ$ MILLION) WRITE DOWN IMPAIRMENT Mix: A change in the mix of product Spring Creek 64.3 (17.2) 47.1 sold decreased EBIT by $28.3 million, with hard coking coal sales falling to Huntly East Mine 33.8 (9.5) 24.3 55% of total export sales volumes due Nature’s Flame 24.5 (6.9) 17.6 to decreased coking coal demand (2011: 63%). Semi-hard and semi-soft Switch 1.6 - 1.6 coking coal sales decreased to 30% Coal Seam Gas 18.5 (5.2) 13.3 (2011: 37%). Export thermal coal sales increased to 15% of total export sales Biodiesel New Zealand 9.0 (2.3) 6.7 to take advantage of market conditions Total Impairments 151.7 (41.1) 110.6 and sell stockpiled lower grade coal Impairment Reversal – Ignite Loan (2011: Nil). Recovered (2.5) 0.7 (1.8) Net Impairment 149.2 (40.4) 108.8 Volumes: Excluding carryover shipments, coal sales volumes were 397,000 tonnes One-Off Items higher for the period, increasing EBIT by Contractor Claim Settlement 12.5 (3.5) 9.0 $27.5 million. Spring Creek stores write-down 3.6 (1.0) 2.6
Costs: Cost of sales, exploration and Nature’s Flame inventory write-downs 5.9 (1.6) 4.3 other costs increased year on year by and provisions for onerous contracts $55.9 million. We have faced significant Spring Creek Mining Co Tax losses on-going escalation of mining costs, - 15.2 15.2 particularly at our Spring Creek and Huntly derecognised East underground mines. Both mines Total Underlying Earnings 171.2 (31.3) 139.9 have been undergoing development Adjustments phases requiring significant expenditure NPAT as reported (40.2) while facing increased regulatory scrutiny in the wake of the Pike River disaster. The Underlying Earnings 99.7 full acquisition of Spring Creek Mine from Cargill in February 2012 added a further Reviews of our underground mining, into account the end of the Government’s $12.2 million of operational expenditure renewable energy and coal seam gas Biodiesel Grant Scheme, following to this increasing cost base during the assets resulted in impairments of $110.6 removal of the previous mandated biofuel second half of the year. Our direct and million net of tax. Weakening export coal requirements, resulted in an impairment indirect exploration, evaluation and markets, together with the increasingly of $6.7 million net of tax. development costs have increased as we complex geology in underground ramped up capability and activity across development areas, resulted in The company wrote down its investment our portfolio, with particular focus on key impairments of Spring Creek Mine of in the Huntly coal seam gas demonstration West Coast export coking resources. $47.1 million net of tax and Huntly East plant by $13.3 million net of tax as we Mine of $24.3 million net of tax. refocus on our Taranaki holdings. Tax Expense: Group tax expense decreased $40.2 million. Included We impaired our wood pellet business, Other underlying earnings adjustments in the tax expense for the year was Nature’s Flame, by $17.6 million as included a payment of $12.5 million the $15.2 million derecognition of tax international markets weakened resulting (before tax) in final settlement of losses carried forward for Spring Creek in idle capacity which looks likely to a legal claim relating to a former mine Mining Company. remain for some time. The company also contractor. Carry forward tax losses wrote down Nature’s Flame’s raw material of $15.2 million were derecognised in Underlying Earnings Adjustments: stocks and made associated provisions relation to Spring Creek Mining Company. Underlying Earnings for the year were totalling $4.3 million net of tax. Goodwill $99.7 million, up 16% from $86.2 million associated with wholesale renewable Capital Management and Funding: in the 2011 financial year. A number of energy distribution business, Switch, was Total assets at 30 June 2012 were items have been excluded from net profit also written off at $1.6 million. $1.2 billion, up $33 million on 2011. after tax in the calculation of underlying Total debt at the end of the period was earnings for the year. (see table opposite) A review of the biodiesel business, taking $295 million (2011: $220 million) which
2012 CAPITAL EXPENDITURE BY MAJOR PROJECTS (EXCLUDES LEASED CAPITAL ITEMS) ($million) 0 5 10 15 20 25 30 35 40 Stockton Cypress Developments Huntly East Mine Spring Creek Mine Reddale Mine Liverpool Development Other exploration & resource proving Renewable Energy Briquetting Underground Coal Gasification Other including Equipment
PG8 included $35.6 million of debt assumed has been placed with existing banks for acquisition of Spring Creek Mining from Cargill following the acquisition periods of up to five years. Company and subsequent capital of Cargill’s 49% share of Spring Creek expenditure within the business resulted Mining Company. Gearing increased Cashflows: Cashflows from operations in $37.8 million of additional capital to 42%. Debt comprised drawn bank were $142 million compared to $129 investment for the group. facilities of $225 million and Medium- million in 2011, with increased cash term Note issues of $70 million. During receipts from higher prices. Capital Dividends: Solid Energy paid a dividend the period $115 million of existing investment totalled $162 million of $30 million on 30 September 2011. banking facilities which were due to compared with $115 million for 2011. Given the volatility and continued expire in November 2012 were extended Of this, about $81 million related to weakness of international coal markets, out over periods of up to six years. An sustaining current operations and $81 the company has not declared a further additional $100 million of new facilities million to new growth initiatives. The dividend for the year.
2012 Business Performance
2011 2012 2012 2012 ACHIEVEMENTS AGAINST STATEMENT OF CORPORATE INTENT TARGETS ACHIEVED TARGET ACHIEVED Value Markets Sales units Coal (Mt) 4.1 4.8 4.6 Pellets (kt) 49 47 43 Biodiesel (Ml as blended product) 2.1 3.0 1.8 Coal Seam Gas (TJ) 0 19 0 Operations Production Units Coal (Mt) 4.0 4.1 4.1 Pellets (kt) 46 47 42 Biodiesel (Ml as B100) 1.8 3.0 2.0 Coal Seam Gas (TJ) 0 19 0 Shareholder Returns Dividend paid ($M) 20 50 30 Dividend Yield [1] 0.7% 1.8% 1.4% Dividend Payout [2] 20% 37% 33% Return on Equity [3] 18% 25% -9% Profitability Operating Margin [4] 24% 23% 20% Return on Capital Employed [5] 20% 25% -4% Leverage/Investment Gearing Ratio [6] 30% 35% 42% Interest Cover (times) [7] 16.0 11.6 11.7 Current Ratio [8] 195% 170% 124% Future Value Capital Investment ($M) 115 167 164
Health and Safety All Injury Frequency Rate [9] 23.3 20.8 19.6 Lost Time Injury Frequency Rate [10] 7.5 5.2 3.4 Environment Annual Net Environmental Effect [11] -1 +6 +32 Cumulative Historical Net Environmental Effect -259 -253 -227 Regulatory, abatement and enforcement notices 0 0 0
Notes 1. Dividends paid / Average commercial value 2. Dividends paid / Net cash flow from operating activities less depreciation expense 3. Net profit after tax / Average shareholders’ equity 4. Earnings before interest, tax, depreciation, amortisation and fair value adjustments (EBITDAF) / Revenue 5. EBIT adjusted for fair value movements / Average capital employed 6. Net debt / (Net debt plus equity) 7. EBITDAF / Interest paid 8. Current assets / Current liabilities 9. Number of injuries per million hours requiring medical aid or greater treatment 10. Number of injuries per million hours resulting in more than one lost work day or shift 11. Solid Energy’s Net Environmental Effect (NEE) score assessing 16 separate environmental factors Millerton pit, Stockton Opencast Mine, Buller.
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG9 Resources
Reddale Opencast Mine, Buller.
COAL RESOURCES AT 30 JUNE 2012 RESERVES (Mt) RESOURCES (Mt) Including reserves Total Total Region Product Proven Probable Measured Indicated Inferred Reserves Resource North Steel/Thermal 11.23 0.00 11.23 33.6 71 77 182 Hard coking coal Buller and semi-hard 2.19 14.09 16.28 1.4 16 16 33 coking coal Semi-soft 5.54 3.67 9.21 8.3 18 18 45 coking coal Thermal 0.00 1.48 1.48 1.0 4 6 11 Reefton Thermal 0.11 0.01 0.12 3.7 0 18 21 Hard coking coal Grey and semi-hard 0.00 0.00 0.00 8.1 22 15 45 coking coal Semi-soft 2.53 0.17 2.70 18.4 40 70 128 coking coal Thermal 0.00 0.00 0.00 0.00 24 10 35 Southland/Otago Thermal 0.00 0.02 0.02 0.00 4 9 13 Lignite 4.93 3.88 8.81 199.9 394 818 1412 Total Coal 2012 26.53 23.32 49.85 274.4 593 1058 1925 Total Coal 2011 48.85 2112.47
Resources declared inclusive of reserves The JORC Code - established by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy (AusIMM), Australian Institute of Geoscientists and the Minerals Council of Australia - sets out minimum standards, recommendations and guidelines for public reporting of exploration results, mineral resources and ore reserves. It has been adopted by the Australian and New Zealand stock exchanges. As a member of AusIMM, Solid Energy reports in substantial compliance with the code. COAL SEAM GAS RESOURCES AT 31 DECEMBER 2011 CONTINGENT RESOURCES PROSPECTIVE RESERVES (PJ) (PJ) RESOURCES (PJ) TOTAL (PJ) 1P 2P 3P 2C 3P + 2C + (Proved) (Proved + (Proved + (Best Estimate) (Best Estimate) Prospective Probable) Probable + Possible) Waikato 0.77 3.55 30.39 0.48 9.00 39.87 Taranaki 0.00 0.00 0.00 900.71 0.00 900.71 Total 2011 0.77 3.55 30.39 901.19 9.00 940.57
The SPE/WPC/AAPG/SPEE Petroleum Resources Management System 2007 and its Appendix is co-sponsored by the Society of Petroleum Engineers, American Association of Petroleum Geologists, World Petroleum Council and the Society of Petroleum Evaluation Engineers.
PG10 HIGHLIGHTS 2012 TARGETS ACHIEVED
NOVEMBER 2011: West Coast exploration capability ramped up peaking at s -ET EXPLORATION PERMIT 80 staff and contractors, 14 heli-supported drill rigs. commitments for our portfolio of permits throughout JANUARY 2012: Reddale mine development completed and first Waikato, Taranaki, Buller, coal produced March 2012. Grey, Southland and MARCH 2012: Opencast resource of 6.5 million tonnes of hard coking Otago districts. coal confirmed in our Denniston Coal Mining Licence following 60 hole drilling programme. s 5NDERTOOK RESOURCE modelling for the prospective Purpose-built facility completed to service exploration in West Huntly Coalfield. the Greymouth region. s !SSESSED POTENTIAL FOR HIGH JUNE 2012: Hard Coking Coal resources infill drilled to measured recovery mining at Huntly resource status and significant reserves identified in the East Mine. Upper Seven Mile valley. s 5NDERTOOK A DRILLING Completed 730 metre deep Mt Davy R&D hole and programme in Rotowaro down-hole reservoir testing to characterise strata and West prospect to inform seam gas properties. decision about future of Converted Inferred resource at McCabe’s and Webb mine this permit. blocks at Stockton to indicated resources. s 5NDERTAKE A DRILLING Exploration at Burkes Creek in Reefton Coalfield proved programme and update up significant coal resources suitable for upper South resource estimate for Island domestic markets. Mangapehi prospect. Completed update of Maramarua K1 Feasibility study. s 5NDERTAKE INITIAL EXPLORATION of Tatu North block in Acquired large quantity of private coal resource in Taranaki. Maramarua Coalfield. s %XPLORE TO UPGRADE 2OCKIES North and West resources to measured resource status. Ongoing. Drill core storage. s %XPLORE -ARSHALLS "LOCK IN the Upper Waimangaroa mining permit. s #OMPLETED EXTENSIVE exploration in Sullivan coal mining licence area to confirm hard coking coal resources for proposed Whareatea Opencast Mine. s 5NDERTAKE DRILLING IN Rapahoe West and Strongman blocks to The challenge of maintaining a strong in support of the Liverpool project, determine the next extraction exploration and resource-proving a planned combination opencast/ block at Spring Creek Mine. programme through a period of cost underground export coking coal constraint was largely met during mine near Greymouth, resulted in a s #OMPLETED INlLL DRILLING OF hard coking coal reserves for the year, including compliance with doubling of opencast reserves at a Liverpool 4 mine feasibility all permit commitments. While a very high degree of confidence, as well study in the Upper Seven renegotiation towards year-end of as significant additional prospective Mile Valley, Grey Coalfield. West Coast agreements for drilling and opencast resources to the north-east. support services resulted in fewer rigs We also identified another 1-3 million s $RILLED DEEP GAS TESTING HOLES working, this trimming of capability tonnes (Mt) of coal in an area between at Mt Davy. has been carefully managed to allow our holdings and a neighbouring mine. s #OMPLETED RESOURCE us to quickly resume former levels proving in Ohai Pit 6 of effort when business conditions In our holdings at Denniston in Buller, prior to progressing to allow. Our key strategies for coal were we completed more than 60 holes final rehabilitation. largely unchanged during the year, with and booked a 900,000 tonne increase an emphasis on export coking coal in hard coking coal resources in the s )NCREASED 4ARANAKI COAL and maintenance of our domestic Sullivan Coal Mining Licence. At seam gas resource and market supply. Stockton Opencast Mine, we completed lifted some resource from feasibility for the Mt William North prospective to contingent COAL RESOURCES mining block, firmed up the life-of-mine status, to identify a trial More than 43,000 metres of drilling was sequence and completed planning for production site by 2013. completed and associated evaluations a comprehensive water management resulted in substantial improvements solution which will service all expected to our resource statement. Drilling future eastern mining blocks. Near
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG11 Reefton, we completed a mining mine’s major resource model. With the solution which would double the value new Reddale domestic market mine at TARGETS FOR 2013 of our Island Block semi-soft coking Reefton now producing, drilling nearby coal reserves. has established a prospective Burkes s #ONTINUE FEASIBILITY ASSESSMENT Creek opencast inferred resource of of developing and mining hard More than 12,000 metres of drilling approximately 18 Mt. coking coals in the Upper Seven to further define the Spring Creek Mile area of Greymouth Coalfield Underground mining blocks north of The refocusing of priorities meant we and south Buller Region. Panels 9-13 revealed some very thick abandoned or substantially curtailed s #ONTINUE NEAR MINE GEOLOGICAL coal of up to 50 metres in places. some elements of the year’s programme hazard definition in highly Evaluations of drilling in this part of including drilling in our Mangapehi structured hard coking coal the Spring Creek Mining Licence, re- prospect, initial exploration of the resource blocks near Millerton evaluation of the Spring Creek resource Tatu North block in Taranaki and, in Opencast in the Stockton Coal estimate and the change in Spring Buller, further exploration of the Rockies Mining Licence. Creek Mining Company shareholding North and West resources and the has resulted in a substantial uplift of Marshalls Block. s %XPLORE AND CONlRM SEMI SOFT resources from last year. coal opencast mining potential in COAL SEAM GAS Strongman Coal Mining Licence. Our post year-end purchase of the The latest independent appraisal of s #ONTINUE THE )SLAND "LOCK assets of Pike River Coal Ltd (in Solid Energy’s coal seam gas acreage Opencast access and feasibility receivership) added approximately 43 in New Zealand’s Taranaki region assessment. Mt of lower-certainty resources. indicates that we now have 858,000 million cubic feet (mscf) of contingent s %VALUATE THE FEASIBILITY OF We completed a feasibility study for resources. In energy terms, this is about increasing reserves in Awaroa mining the Kopako 1 pit and progressed 900 petajoules (PJ), the equivalent 4 pit and continue assessing other elements of this Maramarua of 45 years’ supply for a combined mining potential of opencast resource, which will guarantee North cycle gas turbine like the 400MW resources near Rotowaro. Island industrial supply when our generation unit at Huntly Power Station. s #ONTINUE FEASIBILITY ASSESSMENT resources at Rotowaro Opencast The assessment, by Dallas-based for Burkes Creek Opencast near Mine are exhausted. Drilling in the Netherland, Sewell and Associates Inc Reefton. west of the Huntly East Mine licence (NSAI), is based on exploration results to in Waikato enabled us to update that 31 December 2011. s #ONTINUE PRE FEASIBILITY assessment of lignite opencast for the coal to fertiliser strategy. Resource drilling in the Upper Seven Mile, Grey District.
PG12 Coal Operations
Continued strong progress in all key HIGHLIGHTS areas at our opencast coal mining operations and a strong first half year, boosted by international coal prices DECEMBER 2011: Total Stockton Plateau coal production passes 50 million and carryover shipments from tonnes (Mt), almost 60% delivered since 1987 when Solid 2011, were offset by difficulties in Energy set up as a state-owned enterprise. meeting production targets at our JANUARY 2012: Upgraded Stockton aerial ropeway breaks daily and two underground mines, steadily weekly records for tonnages carried to Ngakawau coal deteriorating international market handling facility. KiwiRail carries weekly record of 48,500 conditions and escalating costs for tonnes to Lyttelton Port. skilled workers, diesel and equipment. FEBRUARY 2012: Full ownership of Spring Creek Mine reverts to MARKETS Solid Energy. International demand for steel – the end MARCH 2012: Reddale Opencast Mine produces first coal for the upper product which underpins Solid Energy’s South Island industrial market. profitability – weakened in response to global uncertainty about growth and Lyttelton Port coal terminal repairs and upgrades mean the financial position of many European facility operating above pre-earthquake capacity countries. Steel demand is closely and efficiency. aligned to economic growth and past MAY 2012: New contractor Stevenson Mining wins some of the investment decisions by coking coal deepest coal yet at Rotowaro Opencast Mine, working at producers, including Solid Energy, 77 metres below sea level. anticipated continued strong growth from emerging Asian economies and generally rising demand from consumers in wealthier nations for goods such as OPENCAST MINING January. We are achieving efficiencies automobiles and appliances. We operate Stockton Mine, in Buller, by applying analysis and management through the Stockton Alliance, a tools to data gathered from a new high- Increased supplies of steelmaking coals partnership with Downer EDI Mining precision GPS system which tracks the at a time of steadily falling demand NZ Ltd. Our investments to improve performance of all machinery on the site. resulted in spot prices for all coking coal capability, health and safety, production The mine’s coal handling and processing grades well below industry estimates and efficiency showed their value this plant delivered more than 1 Mt of long-run pricing by year end. A dip year as the mine exceeded all its primary of saleable coal and ran consistently at in Australian coal supply, the result targets including production which design capacity. We have completed of summer flooding, provided a brief increased by 258,000 tonnes to 1.87 Mt feasibility for an addition to the plant respite shortly after mid-year. Increasing (2011: 1.61 Mt). which would recover up to another domestic supply of unconventional gas 100,000 tonnes a year of very fine coal. in the United States energy market has An upgrade to control systems for the amplified downward price pressure aerial ropeway – an essential link in the We made good progress in opening on semi-soft coking coal prices as mine’s coal supply to the railhead at or developing future resource blocks American thermal coal producers Ngakawau – has improved reliability and at Stockton, opening the McCabes entered the spot market looking to resulted in a record monthly tonnage in block and completing access to No 2 place surplus volumes. Our international coal contracts are in United States dollars, so the continued strength of the New Zealand currency throughout the year has been a third pressure on our returns.
Demand has remained steady in New Zealand for industrial coal. We began negotiations with our two principal North Island customers, Genesis Energy and New Zealand Steel, on new multi-year contracts. If successfully concluded, these will provide the certainty we need to continue investment in Huntly East Underground Mine and further development of our resource holdings at Maramarua, an opencast mining block we plan to begin mining when economic resources at Rotowaro Mine are exhausted.
Stockton Aerial Ropeway, Buller.
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG13 South. We finished mining feasibility With all incidents during the year Solid for the Mt William North block and Energy has been confident that we have await the outcome of our resource had the appropriate people, systems consents application. Mt William North and procedures in place to monitor is expected to follow the Cypress block and safely manage the matters which and will contribute 500,000 tonnes a had concerned the HHU’s inspectors. year to the mine’s output over a decade We appreciate that the HHU, like from 2016. Stockton Alliance further Solid Energy, is aiming for continuous refined its systems to safely strip and improvement in safety performance mine through the major Millerton block, and we are working with its staff to an area which contains a large network understand their requirements and to of historic underground mine drives. agree how these can be incorporated into our operations. We completed Rotowaro Mine, in Waikato, studies of long-term ventilation solutions successfully transitioned to a new for both mines. mining services contractor, Stevenson Mining Ltd, in December 2011. Huntly East Mine produced 336,000 Light vehicle workshop, Ngakawau, Rotowaro met its targets for the year, tonnes, down 10% (2011: 373,000 Stockton Mine. with production of 1.25 Mt (2011: 1.26 tonnes). Although turnover remains high, Mt). The mine delivered its rehabilitation a strong recruitment effort and increased plan, completing 25 hectares. Trials to emphasis on training has largely qualify coal from the Kopako 1 mining overcome the skill shortages which area at Maramarua with customer New had been restricting the mine’s effort. 2012 TARGETS ACHIEVED Zealand Steel were successful. Some progress was made during the year on alternative mining approaches In October 2011, we began developing to increase the proportion of in-ground s Negotiate extension to the Reddale, near Reefton, a small new coal which can be economically and New Zealand Steel contract mining area to supply customers in safely recovered. which expires in June 2013. the upper South Island. First coal s Increased Stockton Mine was delivered on time in March 2012. Spring Creek Mine returned to 100% production to 1.8 Mt pa. Reddale, operated by contractor Doug Solid Energy ownership in February Hood Mining Ltd, will produce about 2012 after a decision by part-owner s Substantially complete Huntly 140,000 tonnes of coal over two to three Cargill to exit coal production. In January East Mine ventilation shaft. years. Production at New Vale Mine, 2012, the mine completed extraction in s Substantially complete in Southland, was up 6% to 318,000 the south-west resource area and coal development works for tonnes (2011: 301,000 tonnes). Some output reduced significantly as effort Cypress extension of small-scale mining continued at both turned to developing the next extraction Stockton Mine. Ohai Opencast Mine in Southland block and installing the underground s Complete feasibility study and Strongman Opencast in the infrastructure needed to mine in this new for Liverpool Mine near Grey District following the discovery area. Total production for the year was Greymouth. Ongoing. of saleable coal during ongoing 240,000 tonnes (2011: 403,000 tonnes). rehabilitation of these sites. s Implement new LOGISTICS development mining process UNDERGROUND MINING Lyttelton Port of Christchurch completed to increase production at Our underground mining operations temporary repairs to the coal stockpile Spring Creek Mine. fell short of their development rate and and loading areas which resulted in the s Expand Lyttelton port production plan targets. Underground facility operating above pre-earthquake stockpile capacity to handle mining has been subject to heightened capacity and efficiency, although there increasing exports. scrutiny since the fatal explosions at remain some draft issues alongside the Pike River Mine in November 2010 the coal berth. The resumption of and both our operations had periods normal ship-loading activities at TARGETS FOR 2013 where aspects of their normal work guaranteed loading rates was pleasing to our international customers. The port were temporarily suspended following s Maintain improved cost incidents which we had notified to company also completed Stage 1 of its position at Stockton Mine. the Ministry of Business Innovation coal stockpile development, including and Enterprise’s inspectorate, the improved environmental controls and s Update West Coast coal High Hazards Unit (HHU). Substantial a new surface chain feeder to improve market mine options strategy. amounts of senior management time loading and coal rotation rates. A new s Identify priority West Coast and technical expertise were required coal quality laboratory at the port, resources for near-term cash to review and update systems and operated by Coal Research Limited, has maximisation. procedures following incidents, and in improved the time taken for analysis of ensuring our workforce was trained to export samples. s Update North Island coal comply with changes. market mine options strategy. s Negotiate new contract with New Zealand Steel for post June 2013. s Determine best coal supply source for Southland lignite conversion projects. New Vale Mine, Southland.
PG14 Lignite Conversion
Solid Energy is introducing and Southlanders. This plant will also enable biofeedstock options and keeping an developing leading-edge energy growth at our New Vale Mine which will eye on developments around carbon technologies for use in New Zealand employ about 10 additional full-time capture and storage, to help reduce or and internationally, aimed at improving staff over time to meet the briquette offset greenhouse gas emissions. energy efficiency and adding value to plant demand. New Zealand resources by providing We have prioritised our proposed CTF substitutes for high-value carbon- COAL-TO-FERTILISER development ahead of the potential based products that New Zealand Feasibility work progresses to determine Coal-to-Liquids (CTL) project and otherwise imports. the preferred sites for our proposed refocusing our resources. We will Coal-to-Fertiliser (CTF) plant and new continue to maintain a watching brief on Developing these technologies will lignite mine to supply the plant. international CTL developments. create a specialised industry in New Zealand that requires highly-skilled, Ravensdown and Solid Energy agreed CARBON MANAGEMENT well-paid workers. The technologies that this further feasibility work will We are committed to taking full include converting lignite resources into be undertaken by Solid Energy. responsibility for greenhouse gas specialist products, such as fertilisers, to Ravensdown remains interested in off- emissions in our lignite developments, displace imported products. take arrangements to meet the demand including the full cost of carbon in for urea in New Zealand and Australia. the economics for each proposed MATAURA BRIQUETTE PLANT Work is on schedule to finalise a decision conversion project. We will deal with We have completed construction of on the preferred CTF plant and mine site our carbon obligation through a range the $29 million domestic-scale Mataura by about early 2013, when we expect to of approaches and technologies. Briquette Plant using Southland lignite to discuss our plans with neighbours. These include technology to reduce make higher-energy coal briquettes for production of emissions, offsetting local and export markets. The CTF process converts lignite into emissions by planting trees and its chemical components through purchasing carbon credits. Pre-commissioning of this plant gasification which is a reaction has begun, with the first briquettes with oxygen and steam under high We continue to monitor the development expected to be produced for sale later temperature and pressure. The resulting of technology aimed to capture in 2012. The plant is designed to prove synthesis gas or syngas is further and sequester carbon underground the briquetting technology and plant treated to produce hydrogen and carbon as one of the options to manage capability which will enable us to grow dioxide for subsequent conversion to carbon produced by our proposed the market through export trials. ammonia and urea fertiliser. gasification developments.
Once fully operational the plant will This technology produces pure carbon employ 14 people directly with the first dioxide as by-product so we are 2012 TARGETS ACHIEVED seven having already been recruited – all investigating biosequestration and s Completed construction of demonstration scale Mataura Briquette Plant. s Complete plant site selection and mining studies for CTF plant. Commence feasibility study. Ongoing. s Progress coal-to-liquids through pre-feasibility study on alternative direct and indirect technologies.
TARGETS FOR 2013
s 3UCCESSFULLY PRODUCE HIGH Mataura Briquette Plant. Credit: Transfield Worley. quality briquettes for sale at the domestic-scale Mataura briquette plant. HIGHLIGHTS s #OMPLETE MINE AND PLANT selection studies for the APRIL 2012: Feasibility study investigations begin on a Coal-to-Fertiliser proposed CTF project. processing plant in Southland to produce enough urea to s #OMPLETE THE #4& FEASIBILITY supply local and export markets. study to determine if the JUNE 2012: Pre-commissioning of domestic-scale Mataura briquette project is commercially and plant starts. environmentally viable.
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG15 Gas Developments
For some years now we have been This could provide energy security the equivalent of five to six years of New developing world-leading niche on the doorstep of New Zealand’s Zealand’s annual gas production. technology to extract energy in the form largest population centres, as well as of gas from deep coal resources to produce affordable, environmentally We have decided to concentrate future generate electricity and make a range of acceptable, high-value products. We CSG efforts within this much larger high-value chemical products. are considering future options for Taranaki permit. commercial UCG plants both in New UNDERGROUND COAL Zealand and overseas. As part of our decision to focus coal GASIFICATION seam gas operations in Taranaki, we are We started up our underground coal Solid Energy operations in the Waikato releasing a number of less prospective gasification (UCG) pilot plant near are believed to be the first worldwide petroleum exploration permits (PEP) – Huntly in the Waikato which is now to access resources from a single Waiau (PEP 52359) and Winton (PEP producing synthetic gas from coal. coalfield using four different extraction 53572) in the South Island, and Counties The plant is designed to provide technologies - underground mining, PEP 52043 in the North Island. geological, process and environmental opencast mining, coal seam gas (CSG) data to inform any future decision to and UCG. proceed to a proposed commercial 2012 TARGETS ACHIEVED UCG plant design. COAL SEAM GAS We have completed work at our Huntly s ,IT UP AND SUCCESSFULLY Solid Energy has a significant resource CSG pilot plant site – successfully operating UCG pilot plant holding in the Huntly Coalfield that is a producing high quality methane gas at Huntly. large-scale strategic resource for New and generating electricity for sale on the s 3UCCESSFULLY OPERATED Zealand. Most of the resource is too local network. commercialisation phase of deep to be extracted economically with Huntly coal seam gas permit. conventional mining technology. UCG In Taranaki, a recent independent technology allows access to extract appraisal of the in-ground CSG resource s $ECISION MADE ON PATH TO gas from deep, complex coal seams to within our permit was 858,000 million commercialisation of generate electricity and make high-value cubic feet (mscf). In energy terms, this Taranaki coal seam chemical products. is approximately 900 petajoules (PJ) or gas permit.
HIGHLIGHTS TARGETS FOR 2013
AUGUST 2011: Completed exploration drilling of seven wells in Taranaki s #OMPLETE OPERATION AND SHUTDOWN petroleum permit. of UCG pilot plant at Huntly. APRIL 2012: Syngas production starts at Waikato underground coal s )DENTIFY NEW AREAS OF POTENTIAL gasification pilot plant. producibility in the Taranaki coal seam gas permit and develop MAY 2012: Electricity produced from coal seam gas sold into local conceptual plans for pilot scale transmission network. production trials.
Calibrating equipment at Solid Energy’s Huntly Underground Coal Gasification Plant in the Waikato.
PG16 Renewable Energy
Taupo wood pellet plant.
Our renewable energy businesses where commodity energy prices are down BIODIESEL NEW ZEALAND produce low-emission, low-carbon and the New Zealand dollar is unusually Biodiesel production for the year biomass and biofuel products. While strong have had significant effects increased to 2.0 million litres (2011:1.8 wood pellet business, Nature’s Flame, and on Nature’s Flame and as a result, we million litres). Sales, however, decreased biofuel business, Biodiesel New Zealand, scaled back exports to Europe because of to 1.8 million litres (2011: 2.1 million achieved some solid milestones in the low margins. litres). The Government subsidy on year, both failed to meet production and biofuel ended in May. While Biodiesel sales targets. We closed our smallest manufacturing New Zealand’s oilseed rape suppliers plant at Rolleston, Canterbury, in March had an excellent 2012 autumn yield, the We have committed significant capital 2012 focusing production on our North business had to drop its contract rate for into these businesses and despite best Island plants at Taupo and Rotorua. oilseed rape due to the market pricing of endeavours and considerable investment These are modern, larger, certified to oil and meal. they have proven uneconomic in the short produce the highest quality and more term. We believe they have potential and than capable of meeting any increase in The business continued to retain and are looking for either investment partners fuel demand. attract high-profile Biogold™ users or to divest them. this year and signed a six-month trial New Zealand’s wood pellet consumption agreement with BP New Zealand to NATURE’S FLAME increased by 50% this year with the supply a biodiesel blend for the retail Wood pellet production fell to 42,000 commissioning of the largest wood pellet- market at one of its busy Christchurch tonnes in the year (2011: 46,000 tonnes). fired boiler in the country at Waiouru Army outlets. Biodiesel New Zealand was also Sales were also down, at 43,000 Base. The project was recognised at the a finalist in the 2012 EECA Awards. tonnes (2011: 49,000). The pressures 2012 Energy Efficiency and Conservation of operating in an international market Authority (EECA) Awards. Despite best endeavours and considerable investment, the business is not currently We had envisioned payback on the wood economic and this is likely to continue for 2012 TARGETS ACHIEVED pellet business in the longer run but the some time. The biodiesel business and market has gone against us. From 1 July, the agrifoods business, which evolved Nature’s Flame operates as a stand- within the biofuels business, have been s #ONlRM HEAT PLANT FOR 4AUPO alone company, reporting through a separated to allow stand-alone external pellet plant expansion. subsidiary board rather than through our investments or divestment. s %XTEND CANOLA GROWING management structure. areas under contract. s %XTEND AND DIVERSIFY HIGHLIGHTS biomass and used oil feedstock contracts. MARCH 2012: Wood pellet production ceased at Rolleston plant. s 'ROW EXPORT PELLET distribution into niche APRIL 2012: The Department of Corrections signed on to supply used European markets. cooking oil from 18 of their prison kitchens to Biodiesel New Zealand. s 4RIAL SHIPMENTS TO KEY !SIAN pellet buyers. MAY 2012: Biodiesel New Zealand and Nature’s Flame recognised at the 2012 EECA Awards. s 'ROW THE COMMERCIAL AND domestic customer base in JUNE 2012: Biodiesel New Zealand and BP Oil New Zealand launched New Zealand. six-month retail trial of Biodiesel blend in Christchurch.
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG17 Health & Safety
Our overall health and safety objective Despite these improved measures, we where we terminated our relationship is healthy people, with no harm to still have too many potential high-risk with the contractor due to repeated anyone, ever. events. Unfortunately, after year end, safety incidents. one of our employees was seriously PERFORMANCE injured at Spring Creek Mine. We UNDERGROUND MINE SAFETY After a period of plateauing results, our are doing everything we can to look Solid Energy contributed fully to the overall health and safety performance after him and support his family, and Pike River Royal Commission of Inquiry, measures have improved significantly in have investigated the incident fully to which held four phases of hearings in the last year. The combined all injuries understand how it happened and what the year and we supported employees frequency rate – incidents requiring can be done to prevent any similar type who either provided submissions medical treatment – dropped to 19.6 of event happening again. or were asked to appear. We await per million hours worked (2011: 23.3). with interest the Government’s release of The lost time frequency rate for staff D & A TESTING that report and any changes proposed and contractors was 3.4 per million We have zero tolerance for the use of as a result. hours worked, down from 7.5 at the any substance that impairs anyone’s end of June 2011. The lost-time injury ability to work safely. During the year, In our closing recommendations, severity rate for our employees dropped our provider carried out 2,248 random we suggested that the Government significantly to 40.5 per million hours drug and alcohol tests on employees would best support industry progress worked (2011: 88.6). and contractors. Of the 45 people on underground mining safety with who returned positive test results, 27 regulations based on and broadly were employees. Most of the positive aligned with Queensland’s regime. 2012 TARGETS ACHIEVED test results were for cannabis (THC) We also believe that the fundamental or synthetic cannabinoids. Employees underpinning of New Zealand’s who test positive for drugs or alcohol workplace health and safety regime — Reduced all injury and lost- s are referred to Solid Energy’s Drug and that it is the employer’s responsibility time injury frequency rates, Alcohol Assessment, Treatment and to do everything practicable to and severity rates, by 10% Case Management Programme. They ensure the safety of everyone at their from our previous best year. are not permitted to return to work until sites — is sound and that mining s Ensured all site health they have returned a negative test. should continue to operate within that and safety management general framework. systems met or exceeded Increased compliance auditing and Solid Energy standards. monitoring is sending a clear message We acknowledge the Government’s to contractors about our commitment to decision to set up the High Hazards Unit, s Provided increased initiatives to support zero harm. Our work with contractors to an inspectorate dedicated to the mining, employee health. enhance their systems is also having a petroleum and geothermal industries flow-on effect in raising the standards of and its direction that the unit put more subcontractors. We take failure to meet emphasis on auditing companies’ TARGETS FOR 2013 our standards very seriously, as was health and safety systems. Since the the case at our Ohai Mine in Southland unit was established in August 2011, s Reduce all injury and lost-time injury frequency rates, and HIGHLIGHTS severity rates, by 10% from our previous best year. s Continued reduction in harm to employees. s Put in place gap analysis and action plans to ensure all site s Vastly improved hazard identification processes as proactive measure to health and safety management prevent incidents. systems meet or exceed Solid s Improved application of risk management processes into our Health & Energy standards. Safety Management System. s Provide increased initiatives to s Continued improvement of health & safety management practices across support employee health. all operations.
PG18 we have engaged with its inspectors (33051<90,:-9,8<,5*@9(;, and management and continue to work SOLID ENERGY ALL NSW NSW UNDERGROUND to get clarity about their expectations SITES COAL MINING COAL MINING in such areas as incident notifications 100 and how our internal audit and incident response processes can best fit with those of the unit. 80
The unit issued two Prohibition Notices 60 to Spring Creek and Huntly East Underground Mines in response to 40
incidents. While we continue to operate treatmentgreater under our own safety assurance 20 hours requiring medical aid or or aid medical requiring hours
programmes, we fully support the external million injuries 1 per of Number scrutiny the regulator can provide. 0 INITIATIVES 2006 2007 2008 2009 2010 2011 2012 We have increased our focus on personal risk assessment tools, such as the Take 5 personal pre-task risk assessment LOST-TIME INJURY FREQUENCY RATE process, Job Safety/Hazard Analysis SOLID ENERGY ALL NSW NSW UNDERGROUND and Safe Work Observation processes, SITES COAL MINING COAL MINING and on safety leadership training such as the Jonah Group’s Personal Risk 40 and Behaviour programmes. The Jonah 35 30 Group is a leader in safety culture 25 development and their programme, run 20 successfully at Stockton and Spring 15 Creek Mines, seeks to build a safety 10 culture through behavioural changes. 5 The programme is now being rolled out 0 at Huntly East and Rotowaro Mines. 12 month12 rolling frequency LTI rate per 1 million hours worked million 1 per rate Having implemented the internationally- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 recognised ICAM incident investigation process, we are aiming to improve the quality of reporting and analysis. LOST-TIME INJURY SEVERITY RATE SOLID ENERGY Our Health and Safety Management SITES System, which sets the framework of policies and standards for health 500 and safety management, is a living 400 document which responds to the 300 changing demands and challenges of our business. In the last year, we 200 have focused on ensuring sites are worked hours 100 12 month12 rolling LTI
maintaining their own Health and Safety million per 1 severity rate 0 Management Systems to meet the requirements of the company standard 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 and to manage their own unique health and safety risks. We also rolled out the LOST-TIME INJURY FREE WORK DAYS BY SITE Solid Energy High Risk Management Lost-time injury free Standards which require operational Previous period of lost- work days at activities to have a detailed and robust time injury free work days risk assessment and management plan 30 June 2012 for high potential risk activities and Huntly East 14 87 hazards relevant to each site. Rotowaro* 133 1472 Stockton & Ngakawau 157 150 Following the appointment of a health Reddale* No LTIs 213 and wellness coordinator to coordinate health and safety initiatives throughout Strongman* No LTIs 304 the business, our Occupational Health Reefton Distribution 112 1122 Advisors have made significant progress Spring Creek 70 61 in proactive injury management, Ohai* No LTIs 222 minimising long-term harm and New Vale 132 362 reducing rehabilitation times. We are Nature’s Flame 399 1187 also developing a national health and wellbeing programme to unify wellness Biodiesel New Zealand 447 138 initiatives and programmes and roll them Coal seam gas No LTIs 365 out across the whole company. UCG Huntly No LTIs 365
* primarily operated by contractors
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG19 Our People
Our overall people objective is to mineworker training programme was STAFF TURNOVER continually attract, retain and develop established to help address this. To highly competent, motivated and become fully qualified takes a year to 18 20% committed staff who perform at an months with a combination of on-the- 18% exceptional level, are well led and see job and classroom-based training. As 16% us as an excellent employer. part of the training programme, trainees 14% also gain their National Certificate 12% At 30 June 2012 we employed 1,658 in Extractive Industries Operations 10% people (2011:1,426) including 34 staff (Underground Extraction) – a level 3 8% on fixed term contracts and a number NCEA qualification. 6% seconded to Stockton Alliance from our 4% joint venture partner Downer EDI Mining During the year, we re-launched our 2% NZ Ltd. Learning Pathways programme for 0% training and development. The new During the year, increasing recruitment programme, which is more efficient 2007 2008 2009 2010 2011 2012 competition from Australian mining and easy to use, is now accessible to Note: Data not available before 2007 companies maintained Solid Energy’s employees via the company intranet. staff turnover at almost 19%. While this number is not unusual in the resource We are continuing to focus on sector, it creates challenges that have understanding and improving employee continued post balance date despite the engagement across the business. sharp downturn and our organisational Following on from company-wide restructuring. employee engagement surveys in 2009 and 2010 we have now started a To attract, retain and develop highly programme of quarterly ‘pulse’ surveys competent staff we remain committed to test our progress on engagement to developing a culture of high on a more regular basis. In the year to performance. As the business faces date we completed two pulse surveys challenging and changing times, the which have each been sent to a random ability of our leadership to steer the sample of 300 staff covering a cross business forward has never been section of the total business. more important. Managers and leaders within the company have now begun The pulse survey results have both been a leadership programme focused on significantly better than the results of developing a high-performing culture. the last annual survey (2010). However, Company-wide succession planning there still remains plenty of scope to remains a focus, and supervisor training improve key areas of engagement and development continue across all throughout the company and this will be our sites. a focus for the coming year as we bed in 2012 TARGETS ACHIEVED the new organisational structure. INITIATIVES s Reduce staff turnover Stockton has had considerable success We remain focused on promoting a to 14%. with the introduction of its Integrated culture of high performance and will Workforce Performance Improvement continue to provide more development s Confirm succession plans System, which is focused on workforce for our managers and leaders around the for top-tier management. performance and competency behaviours that influence engagement s Develop and implement development. Specific programmes and drive performance. This will be leadership pathway for supervisors, acting supervisors and a particular challenge in the coming programme. operators, together with a Just Culture year following the major organisational s Enhance performance framework to assist with consistent changes in progress. management system. and fair assessment of non-compliant actions or behaviours, has resulted in To help ensure we have the right people s Continue to attract a more engaged workforce, improved for the right job, both now and in the key talent. skill levels and positive behavioural future, workforce planning is crucial. We change. One of the major challenges are working on an integrated, long-term TARGETS FOR 2013 for performance at Huntly East Mine workforce plan together with focused has been high attrition rates. The site’s and targeted training and development. s Reduce staff turnover to 18%. HIGHLIGHTS s Complete implementation of Leadership Programme and Leadership Pathway across Attracted key talent through targetted recruitment campaign. s organisation. Started Leadership programme. s s Continue to improve engagement s Launched trainee mineworker programme at Huntly East Mine. and performance culture.
PG20 Our Stakeholders
We aim to be a valued part of New Zealand’s economy, society and the local communities in which we ARTS & *644<50;@05=,:;4,5; CULTURE operate. Our coal business makes a EDUCATION 22.14% & YOUNG significant contribution to national and PEOPLE regional economies. The continued 23.96% input, insight and support of our stakeholders is vital for our sustainability. ENVIRONMENT 15.87% Solid Energy focus on HEALTH community investment by 28.32% London Benchmarking Providing financial assistance is just EARTHQUAKE SUPPORT 9.04% Group (LBG) categories. part of the picture. The initiatives we 2012 unaudited data OTHER 0.67% submitted to LBG, 7 support are often personally important August 2012. to our employees and many volunteer their own time to lend a hand. Their passion and commitment helps turn a sponsorship into a true National and international events in 2012 to a decrease in international visitors community success. meant that we have had to be adaptable through Christchurch as a result of and flexible in allocating funding for the earthquakes. COMMUNITY INVESTMENT community support. The impact of Our community investment focuses the global recession on the business COMMUNITY RELATIONSHIPS on environmental programmes and reduced funding available for community Our community consultative groups organisations, educational initiatives that investment. Total funding allocated in the South Island – based around support youth development, community in 2012 was $1.5 million, a significant our operations at Stockton, Runanga/ groups and initiatives which enhance the reduction on last year (2011: $2.7 Dunollie, Ohai and New Vale – continued social fabric of local life and tell the story million) when we made additional money their information exchange programmes of the resources sector in New Zealand. available to support the Canterbury during the year. In the North Island, we community following the earthquakes. held regular meetings with residents’ The Canterbury earthquakes and their and iwi groups, including in the Waikato aftermath continue to significantly Waahi Whaanui and Waikato-Tainui. impact our staff and the community In Eastern Southland, we advanced requires support on many levels. discussions about how best to engage with the various groups and individuals EDUCATION who have an interest in our lignite Now in our tenth year of support, we projects and set up a neighbours group enjoy participating in and supporting for those living next to our new briquette LEARNZ, a Ministry of Education- plant at Mataura. supported programme that takes primary and secondary school students GOVERNMENT RELATIONSHIPS on diverse virtual field trips from the We maintain a ‘no surprises’ relationship comfort of their classrooms. Our staff with our shareholders, the Ministers of also participate in the trips, sharing their Finance and State Owned Enterprises, expert knowledge in a range of areas and with the Commercial Transactions including mining, geology and resources Group which monitors our activities management. We work with a number on their behalf. We also continue to 2012 TARGETS ACHIEVED of organisations, schools and tertiary maintain relationships with other key institutions to heighten awareness and Government departments, particularly understanding of the resources and the Ministry for Business Industry s %DUCATION RESOURCE available via website mining industry. and Employment which administers (in development). and manages New Zealand’s mineral Our public tours of Stockton Mine, resources, and with regional and district s 3ET UP CONSULTATIVE GROUPS through Outwest Tours, remain very councils in our operating communities. as required. popular, although at 2554 numbers were s -AINTAIN COMMUNITY down on last year (2011: 2980) due investment programme. HIGHLIGHTS TARGETS FOR 2013 s Canterbury staff offered funding to support earthquake affected local s %NHANCE STAKEHOLDER groups of their choice. understanding for our business. s Support for World Buskers Festival to operate free buses from hard hit s 3ET UP CONSULTATIVE GROUPS AS areas of the Christchurch to ‘bring the fun back to the city’. required. s Solid Energy, along with the West Coast communities, raises more than s -AINTAIN COMMUNITY INVESTMENT $50,000 of additional funding for the Canterbury West Coast Air Rescue programme. Trust, which operates the Solid Energy Rescue Helicopter.
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG21 Environment
Our overall environmental objective is For the third year in a row, we had no at Stockton as a capping material to that the cumulative result of all the incidents resulting in abatement or reduce acidic water production from activities we undertake will have a net enforcement notices (2011: 0), but exposed rock – is now also being positive effect on the New Zealand recorded 21 non-compliance events used as a weak binding material to fill environment. In effect, that means we (2011: 17). In each of these cases, old underground mine tunnels in the aim for a year-on-year reduction in our where mistakes or unexpected events Millerton mining area, as well as other negative environmental impacts to the had taken place, we fixed the problem voids so that heavy machinery can safely point where we are in balance. This year and informed the regulatory authorities. operate over them. When a filled area is we substantially exceeded our overall mined, this filler material is reclaimed objective, achieving a net environmental Our rehabilitation liabilities increased to and makes a secondary contribution as effect of +32 (2011:-1). As a result our $230.2 million (2011: $215.8 million). an acid suppressant in rock cappings. cumulative historical net effect at year The $230.2 million total includes $80.6 end stood at -227 (2011:-259). million of Crown liability (2011: $81.1 Results from the latest summer surveys million) for historic sites mined by our of relocated Powelliphanta augusta PERFORMANCE predecessor State Coal. Our share native land snails at Stockton provided We have been tracking our progress of these total liabilities has therefore further confidence that at least one each year since 2003, using a increased to $149.6 million (2011: 134.7 of the resettled snail groups can be standardised set of measures to million). At balance date, the total liability self-sustaining. The survey and analysis evaluate the positive and negative of $230.2 million is 33% of our current method we are using has now been environmental effects of our operations productive assets (2011: 32.9%). running for four years. Along with at each of our sites – both operational the Department of Conservation and those which have been closed. OPERATIONS and outside experts, we are now Each year a number of external Rotowaro Mine, in Waikato now in considering a further release of snails people are invited to assist us in these its final years of productive mining, from the captive population at Hokitika evaluations. We start by estimating the was again the company leader in into VDT-rehabilitated areas of the Mt maximum potential worst effect (how rehabilitation, completing more than Augustus ridgeline. negative would the “score” be if we had 40 hectares. Stockton Mine completed done no mitigation work at all?), then almost 27 hectares, including areas on During the year, we worked alongside reduce each site’s score by factoring the Mt Augustus ridgeline. the Department of Conservation in in the positive benefit of any mitigation protecting the whio (blue duck) by there during the year. An on-site benefit A major challenge at Stockton is a providing financial support for the would include the amount of previously scarcity of productive topsoil, due to Styx-Arahura Whio Security Site and disturbed land which had been signed the very heavy rainfall in the area. The Operation “Whione” at the Oparara and off as fully rehabilitated. The total score mine team made good progress during Ugly Rivers in Buller. Both programmes from our sites is then further augmented the year on a programme to incorporate aim to protect whio from predators such by the estimated benefit of any off-site thermally-treated wastewater biosolids as stoats. work we do or support (for instance, our into its rehabilitation programme. This long-term support of the Department of high-quality material is being supplied by As part of our environmental Conservation’s efforts to support whio Christchurch City Council and we expect management on the Stockton plateau (blue duck) on the West Coast). it to make a substantial contribution we tag and monitor Great Spotted Kiwi to Stockton’s rehabilitation effort in that live in or near our operations. During The main contributor to negative scores coming years. is the amount of disturbed land we 2012 TARGETS ACHIEVED have and despite having rehabilitated The mine continued to refine its use a little over 73 hectares during the of vegetation direct transfer (VDT), a year (2011: 36 hectares), the total system which sees blocks of existing s No significant environmental amount of disturbed land increased to ground cover and soils carefully incidents. 1687.5 hectares (2011: 1656 hectares). removed from future operational areas s Reduce out-of-compliance Included in this expanded area are our and repositioned on areas which have events by 10%. new Reddale Opencast Mine near been sculpted for rehabilitation. Cement Reefton (13 hectares) and an additional kiln dust – another industrial by-product s Reduce environmental 76 hectares at Stockton Opencast Mine. which is already successfully used liabilities, as a percentage of total productive assets.
HIGHLIGHTS TARGETS FOR 2013
NOVEMBER 2011: Research paper, “Addressing the Environmental s No significant environmental Effects of Mining on the Ngakawau River”, wins incidents. Hynd’s Paper of the Year Award at Water NZ’s s Reduce out-of-compliance annual conference. events by 10%. SUMMER 2011-12: Latest Powelliphanta augusta monitoring provides s Reduce environmental further confidence that relocated native land snails can liabilities, as a percentage of be self-sustaining. total productive assets.
PG22 View from the Old Ghost Road, an old gold CUMULATIVE NET ENVIRONMENTAL miners’ road which is being revived as a tramping and mountain biking track near Solid EFFECT 2003 - 2012 Energy’s Stockton Mine in the Buller. Solid CUMULATIVE NET EFFECT Energy has supported several key elements 0 of The Old Ghost Road project including the huts that will service the trail. -200
-400 routine monitoring the Stockton Alliance -600 CUMULATIVE EFFECT staff found a recently hatched kiwi chick AFTER ON-SITE MITIGATION that without intervention would struggle -800 OFF-SITE MITIGATION to survive. In line with Stockton’s wildlife -1000 permit, the team collected the chick and MAXIMUM POTENTIAL EFFECT -1200 sent it to Willowbank Wildlife Reserve BEFORE MITIGATION in Christchurch. Willowbank reared -1400 the chick – a female – until it reached -1600 one kilogramme before sending her to -1800
Paparoa Wildlife Trust in Greymouth to 2003-2012 effect Cumulative net environmental be socialised with other Great Spotted -2000 EFFECT OF CUMULATIVE Kiwi. In consultation with Ngati Waewae 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 and the Department of Conservation, the team recently released the kiwi to the Lake Rotoiti Mainland Island, a CUMULATIVE HISTORICAL NET CHANGE IN NET ENVIRONMENTAL predator-controlled area within Nelson ENVIRONMENTAL EFFECT TO 2012 EFFECT 2011 – 2012 Lakes National Park. 0 +40 -227 -200 +1 +32 +127 +20 -400 +145 +1558 0 -600
-800 NET EFFECT CUMULATIVE -20
-1000 -40 -1200 BEFORE MITIGATION EFFECT MITIGATION Environmental effect Environmental OFF-SITE MITIGATION Environmental effect Environmental CUMULATIVE EFFECT OF CUMULATIVE -60 MITIGATION
-1400 CHANGE IN NET MAXIMUM POTENTIAL EFFECT CHANGE IN OFF-SITE ENVIRONMENTAL ENVIRONMENTAL CHANGE IN ONSITE
-1600 EFFECT CUMULATIVE OF ONSITE MITIGATION POTENTIAL EFFECT
-80 CHANGE IN MAXIMUM -1800 -1912 -100 -2000 -114 -120
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG23 The Board of Solid Energy AS AT 30 JUNE 2012
JOHN PALMER JOHN FLETCHER ALAN BROOME ONZM, BAgrSc, FNZID Former Chairman BSc, DBA, PMD, AMInstD Deputy Chairman I.Eng, F.AusIMM, FAICD, MIMMM (London) John has extensive experience as a John is a business consultant and Alan, a metallurgist, has extensive director and chairman of major companies company director with extensive experience in the mining and minerals in both New Zealand and Australia. experience in the energy sector including industry, holding directorships in a Directorships as a former Managing Director of Shell number of mining companies. s !IR .EW :EALAND ,TD #HAIRMAN New Zealand Ltd. Directorships s !-0 ,TD Directorships s !USTMINE ,TD !5 #HAIRMAN s !-0 ,IFE ,TD s 4ECHTONICS 'ROUP ,TD #HAIRMAN s "UCCANEER %NERGY ,TD !5 s 2ABOBANK !USTRALIA ,TD s %#, 'ROUP ,TD (Chairman) s 2ABOBANK .EW :EALAND ,TD s /BIQO ,TD s #ARBONXT ,TD #HAIRMAN (Chairman) s 0ARASOL #ONSULTING ,TD s #2, %NERGY ,TD #HAIRMAN Shareholdings Shareholdings s )NBYE -INING 3ERVICES ,TD !5 s !IR .EW :EALAND ,TD s /BIQO ,TD (Chairman) s !-0 ,TD s 0ARASOL #ONSULTING ,TD s -ICROMINE 0TY ,TD !5 #HAIRMAN Nepean Mining Ltd (AU) Resigned from the Board on 31 August 2012. s s NUENZ Ltd (Chairman) s Rio de Cobre Alliance (Chile) (Chairman) s 7ORKPAC )NTERNATIONAL 'ROUP ,TD !5 (Chairman) Other s -EMBER OF THE -INING Advisory Committee Austrade s -EMBER OF #3)2/ -INING 3ECTOR Advisory Council MICHELLE SMITH JOHN MCDONALD s $IRECTOR OF #OAL !SSOCIATION M.Com (Hons), NZICA, ICAEW BCA (Hons), BCom, CA, CMA of New Zealand Inc. Michelle is a professional director who has John is a company director and trustee over 20 years’ experience working within with more than 30 years’ experience in the financial services industry in London. executive management positions with She previously held senior positions the former Fletcher Challenge Group of with Goldman Sachs and Ernst & Young companies. He has held directorships in in London. a number of publically listed companies Directorships including over nine years with s (EARTLAND "UILDING 3OCIETY Air New Zealand Ltd. s -EDICAL !SSURANCE 3OCIETY Directorships New Zealand s (ORIZON %NERGY $ISTRIBUTION ,TD s -EDICAL &UNDS -ANAGEMENT ,TD s .ATURALLY .ATIVE .: ,TD s -EDICAL )NSURANCE 3OCIETY ,TD s 0OHUTUKAWA 0RIVATE %QUITY ,IMITED s -EDICAL -ORTGAGES ,TD s 0OHUTUKAWA 0RIVATE %QUITY )) ,IMITED s -EDICAL 3ECURITIES ,TD Other s -ICHELLE ! #ONSULTING ,TD s &LETCHER "UILDING %MPLOYEE SIMON MARSTERS s 0AUL 3MITH 0UBLISHING ,TD Educational Fund Ltd – Director/ BE Hons (Chem) Other Trustee Simon is a chemical engineer and former s -EDICAL !SSURANCE 3OCIETY .EW s &LETCHER "UILDING 2ETIREMENT 0LAN n General Manager of Imerys Tableware Zealand Ltd – Trustee Director/Trustee Division Asia. He held senior roles in s )NSTITUTE OF #HARTERED !CCOUNTANTS s &LETCHER "UILDING 3HARES Ceramco Corporation and New Zealand England and Wales – Member Schemes Ltd China Clays. s .EW :EALAND )NSTITUTE OF #HARTERED s 4ENON %MPLOYEE %DUCATIONAL Accountants – Member Fund Ltd – Director/Trustee Directorships s "IO 0ACIlC %NERGY ,TD s -ARSTERS 0ROJECTS ,TD David is a consultant Directorships s -ARSTERS #ONSULTING ,TD at Chapman Tripp, s 4ENNIS .EW :EALAND Shareholdings specialising in commercial (Chairman) s "IO 0ACIlC %NERGY ,TD structuring and taxation s &ULBRIGHT .EW :EALAND s .EW :EALAND 2ElNERY ,TD law. He has had over 25 Other year’s legal experience s )NSTITUTE OF $IRECTORS n involving roles as a partner -EMBER ADRIENNE YOUNG-COOPER and Chairman of Minter s .EW :EALAND ,AW Ellison Rudd Watts. BA, MSc, MNZPI DAVID PATTERSON 3OCIETY n -EMBER BCA, LLB (Hons), LLM s #HAPMAN 4RIPP n Adrienne Young-Cooper retired from (Harvard) Consultant the Board on 30 April 2012.
This information meets the requirements of Section 140 of the Companies Act and clause 26 of the Company’s Constitution.
PG24 Governance
Solid Energy New Zealand Ltd is a state-owned enterprise incorporated on 24 February 1987 as a private limited liability company.
The shareholders of the company are the Minister of Finance and the Minister for State Owned Enterprises. The share capital of Solid Energy is 60,900,000 shares, with each shareholder holding 50%.
Solid Energy’s strategic purpose is to realise the immense value of New Zealand’s natural resources and to take Solid Energy’s competitive advantage to niche global resource opportunities. Solid Energy believes this will create long-term value for shareholders. In pursuing the strategic purpose, we have committed to the principle of best practice in corporate governance and strive to foster a culture that values and rewards exemplary ethical standards, personal and corporate integrity and respect for others. The Board governs Solid Energy in accordance with its strategic purpose along with a commitment to a transparent and high-quality governance system. This approach is founded in the belief that there is a link between high-quality governance Rocky Creek washery. and the creation of long-term shareholder value.
REGULATORY FRAMEWORK understands and effectively responds INDEPENDENCE The principal legal responsibilities of to shareholder questions and matters Each of the Directors of the company Solid Energy are the same as those relating to the management and is considered by the Board to be that apply to any other private company governance of the company. In addition independent of management and free with the addition of the requirements set to consulting with Shareholding Ministers from any business or other relationship out in the State Owned Enterprises Act on transactions above an agreed value that could materially interfere with 1986. State owned enterprises (SOEs) threshold, the Board adheres to a “no the exercise of their independent are Crown-owned companies that surprises” policy which ensures that the judgement, except where declared and operate as commercial businesses. Shareholding Ministers are provided with managed accordingly. regular information and updates on the The principal objective of every SOE is business. Proceedings at the Annual DUTIES AND DELEGATION to operate as a successful business General Meeting and briefings to the The Companies Act 1993 sets out and to be as profitable and efficient Shareholding Ministers and Government the legal duties of company directors, as comparable businesses that are officials are also important venues in including the duty to act in good faith not owned by the Crown. SOEs are which the Board is able to engage with and in the best interests of the company. also required by statute to be good its shareholders. A number of other duties are set out in employers and to exhibit a sense of the Act which place responsibilities of social responsibility. CONTINUOUS DISCLOSURE high endeavour upon anyone assuming Under the State Owned Enterprises the mantle of director. Further information on the governance Continuous Disclosure Rules, Solid and accountability regime for SOEs can Energy is required to disclose the terms In discharging its duties, the Board has be located in the Owner’s Expectations of material transactions entered into as specifically reserved certain matters Manual for state owned enterprises at well as any information in its possession for its own consideration and decision www.comu.govt.nz that will have an impact on Solid making. These are: Energy’s commercial value. These rules s the appointment of the Chief Executive SHAREHOLDER ENGAGEMENT also require Solid Energy to announce Officer (CEO) The Board is accountable to the publicly more detailed financial results s the approval of the company’s overall Shareholding Ministers for creating and at the end of each half and full financial strategy and annual budgets delivering value through the effective year. These rules are very similar to the s determination of matters in governance of the business. The continuous disclosure rules that apply to accordance with the approved Board has developed a strategy for companies listed on the New Zealand delegations of authority engaging and communicating with Stock Exchange and are designed s formal determinations that are required the Shareholding Ministers, aspects to increase the transparency of state by the company’s constitutional of which are requirements of the State owned enterprises and to provide the documents, by statute or by other Owned Enterprises Act. In this regard, public with a more continuous flow of external regulation the Board is required to produce an information regarding their performance. annual Statement of Corporate Intent, Beyond those matters, the Board has an Interim Report and an Annual Report, ROLE AND RESPONSIBILITIES delegated all authority to achieve the all of which must be presented to The Board’s role is to represent strategic purpose to the CEO, who Parliament by the relevant Shareholding the Shareholding Ministers and it is is expected to take all decisions and Minister. Outside of these requirements, accountable to them for creating and actions which, in the CEO’s judgement, the Shareholding Ministers are delivering value through the effective are reasonable, having regard to the encouraged to make their views known governance of Solid Energy’s business. limits imposed by the Board. The CEO to the Board and to raise matters of The performance of the Board and remains accountable to the Board for concern directly with it. the corresponding contributions of the authority that is delegated and the Directors to the Board’s collective for the performance of the business. The Board also uses a range of formal decision-making process are essential The Board monitors the decisions and and informal measures to ensure that it to fulfil this role. actions of the CEO and the performance
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG25 of the business to gain assurance that progress is being made towards DIRECTORS’ REMUNERATION the strategic purpose. The Board The following people held office as Director during the period and received the also monitors the performance of the following remuneration during that period: company and assesses its risk profile through its committees. The CEO is NAME REMUNERATION required to report to the Board regularly in the spirit of openness and trust, J Palmer (appointed 7 December 2006; resigned 31 August 2012) $80,000 on the progress being made by the J Fletcher (appointed 9 May 2007) $50,000 business. The Board and its committees determine the information required from A J Broome (appointed 1 May 2006) $40,000 the CEO, any employee or external J McDonald (appointed 14 March 2007) $40,000 party including the external auditor. S Marsters (appointed 1 May 2008) $40,000 Open dialogue between individual members of the Board and the CEO D Patterson (appointed 1 May 2010) $40,000 and other senior managers is M A Smith (appointed 1 November 2010) $40,000 encouraged, so as to assist the Directors A Young-Cooper (appointed 27 November 2002; in gaining a better understanding of $33,333 resigned 30 April 2012) Solid Energy’s business.
TRAINING Structured opportunities are provided nature of any disclosure of interest made EVALUATION to build a Director’s knowledge through by a Director. The Board regularly undertakes an initiatives such as visits to Solid Energy evaluation of its performance recognising sites around New Zealand. Knowledge Solid Energy’s Constitution provides the important contribution this makes to is also built through involvement with that a Director who is interested in a the process by which the Shareholding the CEO and other senior employees transaction may not vote on a matter Ministers may consider the skills make-up in Board meetings and business relating to that transaction. Such a of the Board when they consider Board briefings, attendance at development Director may attend a meeting at which appointments and reappointments. The sessions focused on specific topics of a matter relating to the transaction performance of each individual Director relevance and an induction programme arises and may be included among the is evaluated as their term of appointment specifically tailored to the needs of Directors for the purposes of determining nears completion. incoming Directors. the presence of a quorum. It is the expectation of Shareholding Ministers DIRECTORS’ INSURANCE & CHAIRMAN for Directors who are interested in a INDEMNITY The Chairman of Solid Energy is transaction to absent themselves from The company has arranged policies responsible for leading the Board deliberation unless the Board resolves of Directors’ liability insurance which, and ensuring that it is operating to that this is not required. together with an indemnity given to the acceptable governance standards. The directors pursuant to Section 162 of chairman is responsible for leadership of DIRECTORS’ APPOINTMENT the Companies Act 1993, ensure that the Board and ensuring its effectiveness PROCESS generally Directors will incur no monetary in all aspects of its role by promoting a Solid Energy’s Shareholding Ministers loss as a result of actions undertaken by culture of openness and debate, and are responsible for the appointment them as Directors. Certain actions are by facilitating the contribution made by of each Director to the Board of Solid specifically excluded, for example the Directors. He is responsible for ensuring Energy. The process is managed by incurring of penalties and fines which that good communication is maintained the Crown Ownership Monitoring Unit may be imposed in respect of breaches with the Shareholding Ministers, and (COMU) with the Shareholding Ministers of the law. that all Directors are made aware of their being accountable to Parliament for views. His duties include building an the appointment of Directors. Directors DIRECTORS’ LOANS effective, high-performing and collegial are generally appointed for a term of There were no loans by any member of team of Directors, and ensuring that three years and may be reappointed at the Solid Energy group to Directors. they operate effectively as a Board. the expiry of that term, subject to their contribution having been satisfactory DIRECTORS’ CONFLICTS OF and their skills continuing to be relevant INTEREST to Solid Energy’s Board. Under sections 139 to 149 of the Companies Act, a Director of a company must avoid a situation in Huntly East Mine, Waikato. which he or she has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. Under the requirements of the Companies Act, Directors must disclose any relationship and/or matters that give rise to an actual or potential conflict of interest. The Board has in place a process for disclosing and dealing with conflicts of interest, including maintaining an interests register which ensures that all Directors are aware of the existence and
PG26 Solid Energy Board at Rotowaro Mine.
BOARD MEETING ATTENDANCE and reviewing the effectiveness of Solid effectiveness of the company’s health, Attendance at Board meetings during Energy’s risk management and internal safety and environmental strategy, the year ended 30 June 2012. control systems. performance and governance. This committee also reviews the outcomes of ABREMUNERATION COMMITTEE all investigations into significant health, safety and environmental incidents, John Palmer 16 15 MEMBERS AB and keeps the Board informed of John Fletcher 16 16 John Palmer (Chair) 4 4 new developments, trends and/or Alan Broome 16 15 John Fletcher 4 4 forthcoming significant impacts on health, safety and environmental matters John McDonald 16 16 Adrienne 33generally, which may be relevant to Solid Young-Cooper 1 Simon Marsters 16 16 Energy and its group’s operations. David Patterson 16 15 Responsibilities The principal roles of the Remuneration COALCORP INSURANCE SERVICES Michelle Smith 16 13 Committee are to consider and Adrienne determine all elements of the DIRECTORS AB 14 11 Young-Cooper1 remuneration of the CEO and the other John McDonald (Chair) 4 4 heads of the business units of the Anthony Burg 4 3 COLUMN A – indicates the number of company (the Executive Leadership meetings/telecons held during the period the Team) as defined by the CEO and to Dr Don Elder 4 4 director was a member of the Board and/or committee. determine targets for any performance- John Palmer 4 4 COLUMN B – indicates the number of related pay schemes operated by meetings/telecons attended during the the company. This committee makes David Patterson 4 4 period the director was a member of the recommendations to the Board in regard Michelle Smith 4 4 Board and/or committee. to all elements of remuneration of the members of the Executive Leadership Responsibilities BOARD COMMITTEES AND Team. The committee receives Coalcorp Insurance Services (CIS) is ATTENDANCE independent advice on benchmarking Solid Energy’s wholly-owned captive AUDIT & RISK COMMITTEE and best practice. insurer. It provides primary insurance protection for Solid Energy’s assets MEMBERS ABThe remuneration of all Directors is and revenue. CIS, in turn, purchases John McDonald (Chair) 7 7 determined by the Shareholding Minister. reinsurance in the global market. David Patterson 7 7 HEALTH, SAFETY & ENVIRONMENT 1. Adrienne Young-Cooper resigned from Michelle Smith 7 6 COMMITTEE the Board 30 April 2012.
John Palmer (ex officio) 7 6 MEMBERS AB Responsibilities John Fletcher (Chair) 5 5 The Audit & Risk Committee assists the Alan Broome 5 4 Board in discharging its responsibilities with regard to financial reporting, Simon Marsters 5 5 external and internal audits and controls, Adrienne 43 including reviewing Solid Energy’s half- Young-Cooper1 yearly and annual financial statements, John Palmer (ex officio) 5 4 considering the scope of the company’s annual external audit and the extent of Responsibilities non-audit work undertaken by external The principal responsibility of the Health auditors, approving the company’s Safety & Environment Committee is to internal audit programme, advising on review and make recommendations to the appointment of external auditors the Board on the appropriateness and
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG27 Solid Energy Rescue Helicopter.
FRAMEWORK FOR MANAGING RISK Uncertainties exist in all aspects of our external and internal environments. We must have a current, comprehensive and correct understanding of our risks and, using the most efficient methods, ensure that those risks are within the company’s risk appetite.
We achieve this using our Risk Management framework. Our Integrated Business Framework (IBF) describes our entire business: what we do, why we do it and how we do it. It brings together all our plans, business principles, management systems, policies, procedures and other key information. Our IBF ensures key risks to achieving critical outcomes for Solid Energy in the following five areas are effectively managed.
Value purpose of managing risk effectively is activities and outcomes, with Maximise shareholder value by to increase the likelihood of achieving regular reports to the Audit and Risk generating a sustained long-term return our objectives. The effect that these Committee of the Board greater than the market cost of capital uncertainties have can be positive or s other business management systems for businesses with a similar risk profile. negative; our risk management includes (including our business planning both threats and opportunities. Since processes) into which activities for People risk arises from all decisions that we managing risk are embedded Continually attract, retain and develop take, our risk management processes highly skilled, motivated and committed and activities apply to all areas of our INTERNAL CONTROL staff who perform at a high level, business where we exhibit management ENVIRONMENT are well led, and see us as an control. These cover all aspects of risk in Our internal control systems cover excellent employer. a consistent manner, including risks that all material business areas including have potential impacts relating to value, financial, operational and compliance Health & Safety performance and to people’s safety and controls. They have been designed Have healthy people, with no harm to wellbeing, to our reputation, and to our to manage, rather than eliminate risk, anyone, ever. interaction with the natural environment. to achieve company objectives and provide reasonable but not necessarily Environment ELEMENTS OF THE FRAMEWORK absolute assurance against material The cumulative result of all the activities Key elements of our framework for misstatement or loss. we undertake will have a positive net managing risk include: effect on the New Zealand environment. s our risk management policy, endorsed RESPONSIBILITIES by the Board The Board is responsible for setting Reputation s a risk matrix, which indicates how we the risk appetite. The Board annually Be seen as a valued part of New evaluate and escalate risks depending reviews the effectiveness of the Zealand’s economy, society and local on their level of materiality company’s risk management system, communities. s communication of our risk processes and internal controls. The management framework explaining CEO is accountable to the Board for the Solid Energy is committed to achieving the specific language we use to implementation of Solid Energy’s risk this by the application, throughout the talk about risk and the company’s management framework and is ultimately business, of robust risk management performance expectations responsible for the management of risks methods and tools. Current best practice s tools to assess risks depending on the in the business. Managers of operations is captured within the Australian/New scope and context of the assessment are also responsible for identifying Zealand Standard for Risk Management s education and training to increase the and managing risk in their areas of AS/NZS ISO 31000:2009, which capability of our people to manage responsibility. At an individual level, all adopts the international standard risks within their areas of responsibility personnel are responsible for managing ISO 31000. Our risk management s access to risk specialists (internal and risk in their work areas. framework is based on this standard but external) carefully tailored to ensure its effective s risk financing processes including our implementation within Solid Energy. insurance programme s a risk-based assurance programme Risk is defined as the effect of with monitoring and reporting uncertainty on objectives; the central processes on risk management
PG28 Employee Remuneration
Our remuneration strategy and principles Long-Term Incentive (LTI) EMPLOYEES’ REMUNERATION* support our overall people objective This may be available to senior IEA $’000 2012 2011 2010 defined in our People Policy Statement: employees whose performance To continually attract, retain and over a period longer than a year can $100,000 - $109,999 116 67 68 develop highly competent, motivated measurably affect the long-term value $110,000 - $119,999 51 65 34 and committed staff who perform at an of the company. The nature and amount $120,000 - $129,999 51 36 40 exceptional level, are well led, and see of any LTI is set individually. Objectives $130,000 - $139,999 55 39 39 us as an excellent employer. are set at the beginning of the period $140,000 - $149,999 23 35 23 and reviewed annually and/or at the $150,000 - $159,999 29 25 27 IEA REMUNERATION dates specified. It is not available $160,000 - $169,999 32 17 12 Our remuneration structure for to employees whose VR includes a $170,000 - $179,999 12 23 8 employees with individual employment Gainshare component. $180,000 - $189,999 11 89 agreements (IEAs), including the Chief $190,000 - $199,999 8 75 Executive Officer (CEO) and senior Gainshare (GS) $200,000 - $209,999 12 66 management, is intended to create a This is an individual allocation from the $210,000 - $219,999 12 44 significant range in Total Remuneration company Gainshare pool, which is $220,000 - $229,999 10 41 (TR) between poor, base and calculated as a set percentage (7.5%) $230,000 - $239,999 4 42 exceptional performance. An average of the amount by which the company $240,000 - $249,999 3 23 performer in an average year for their achieves a return on shareholder equity $250,000 - $259,999 4 11 part of the business and for the total above a normal market return (10%). $260,000 - $269,999 8 22 company can expect to receive near the It is not available to employees whose $270,000 - $279,999 2 11 market median TR for their position. An Variable Remuneration includes an $280,000 - $289,999 3 individual who performs exceptionally, in LTI component. a year when their business area and the $290,000 - $299,999 1 2 whole company performs exceptionally, Actual STI, SBI and LTI payments are $300,000 - $309,999 1 24 may earn TR near the top of the relevant based on aggregated performance $310,000 - $319,999 2 31 market for that position. against minimum, base and exceptional $320,000 - $329,999 3 22 targets set for a range of key performance $330,000 - $339,999 1 To achieve this, remuneration is set indicators (KPIs) across relevant key $340,000 - $349,999 1 specifically for each position and result areas (KRAs). $350,000 - $359,999 4 21 individual. It includes a guaranteed Total s Performance against any KPI is rated $360,000 - $369,999 1 11 Fixed Remuneration component (TFR), as zero unless the minimum target is $370,000 - $379,999 plus “at-risk” Variable Remuneration exceeded $380,000 - $389,999 1 2 components (VR) that are paid in part or s 0ERFORMANCE AGAINST ANY +0) IS LIMITED $390,000 - $399,999 2 1 in full based solely on actual performance. to base unless the aggregate for all $400,000 - $409,999 1 2 KRAs exceeds 85% of base $410,000 - $419,999 Total Fixed Remuneration (TFR) includes s )NCENTIVE PAYMENTS ARE ZERO UNLESS $420,000 - $429,999 1 all fixed and guaranteed benefits, the aggregate for all KRAs exceeds $430,000 - $439,999 1 allowances and deductions as set out in 60% of base. $440,000 - $449,999 1 each employee’s IEA. The overall intent $450,000 - $459,999 1 Under this structure the part of an IEA for TFR is to be close to the market $460,000 - $469,999 1 median TFR for each position, i.e. employee’s Total Remuneration that $490,000 - $499,999 1 significantly below the market median TR is at-risk and based on company and $500,000 - $509,999 1 for the position, considering comparable individual performance varies by position $520,000 - $529,999 1 companies in the relevant market for and individual from 23% up to 50%. The each position. amount actually paid may range from $550,000 - $559,999 1 1 s 42 4&2 62 none to all of this at-risk component. $570,000 - $579,999 s 62 34) OR 3") ,4) OR 'AINSHARE $580,000 - $589,999 1 Performance is assessed based on final $590,000 - $599,999 1 Short-Term Incentive (STI) results for the year and any incentives $610,000 - $619,999 1 1 This is set separately for each IEA are paid during the subsequent financial $650,000 - $659,999 1 employee. Payment is based on year. Total remuneration reported for the $680,000 - $689,999 1 an individual’s performance against 2012 financial year therefore includes $710,000 - $719,999 objectives set at the beginning of the year TFR for the 2012 year plus STI, SBI, $790,000 - $799,999 1 and reviewed at the end of the year. It LTI and Gainshare payments earned $1,190,000 - $1,199,999 is not available to employees whose VR for the 2011 financial year but paid at $1,240,000 - $1,249,999 includes an SBI component. the beginning of the 2012 year. This $1,270,000 - $1,279,999 1 reporting methodology is consistent with $1,340,000 - $1,349,999 1 Site-Based Incentive (SBI) previous years. $1,410,000 - $1,419,999 1 This is set for IEA employees on some TOTAL 472 368 301 sites. Payment is based on the site’s *Includes Stockton Alliance Ltd employees. NOTE: performance against objectives set at Remuneration (gross earnings plus company 1. Total remuneration reported is fixed the beginning of the year and reviewed benefits) greater than $100,000 earned by 472 Solid remuneration for the current year plus variable at the end of the year. It is not available Energy and Stockton Alliance employees (2011: remuneration for the previous year. 368 employees). Gross earnings include retirement/ 2. Of the 472 employees who earned more than to employees whose VR includes an redundancy payments. Company benefits include $100,000 in the year, 373 (79%) were in the coal STI component. superannuation, vehicle, medical and life insurance. business and 61 (13%) in the Corporate functions.
SOLID ENERGY NEW ZEALAND LTD ANNUAL REPORT 2012 PG29 CEO REMUNERATION KEY RESULT AREAS AND Remuneration structure and levels for WEIGHTING FOR 2011 the CEO and senior employees are set ASSESSMENT and assessed based on these same Dr Elder’s available remuneration IEA remuneration principles, but using components, his overall performance specific market benchmark information assessment by the Board, and his and considerations for each position actual remuneration paid for the 2012 and individual. financial year are shown in the table below. Based on Board assessment against The Board sets the remuneration his performance objectives for the 2012 year (STI) and the three year period 2009 structure for the CEO, Dr Don Elder, Rotowaro Mine. using specialist external advice, and to 2012 (LTI) he was awarded $468,479 sets his Total Fixed Remuneration (TFR) (58%) of his at-risk Variable Remuneration annually. Any fees he receives from of $805,640. As for all IEA staff, Dr Elder’s TR for external board appointments (2012: the 2012 year shown in the Employee none) are deducted from his TFR to However Dr Elder declined to take his Remuneration table is not his actual calculate actual cash pay. The variable STI ($164,350). As a result his Total remuneration for the 2012 year, but a component of his remuneration (VR) Variable Remuneration for the 2012 year, composite of his TFR for the 2012 year includes Short-Term and Long-Term paid in August 2012, was $304,129 and his STI and LTI earned for the 2011 Incentives (STIs and LTIs) and is up to (37% of his potential TVR), and his Total year, but paid early in the 2012 year. 100% of his TFR i.e. 50% of his Total Remuneration actually paid for the 2012 Remuneration is “at risk” based on his year was $1,109,769 (69% of his potential In addition Dr Elder advised the Board in and the company’s performance. TR) (2011: $1,359,639, 87%). He did not July 2012 that he would be taking a 10% have any external fees in the year. Results reduction in his Fixed Remuneration in Short Term Incentive: for the 2011 year are also shown. the 2013 year. s 50% of Total Fixed Remuneration, set and assessed annually. s Base performance = 60% WEIGHT s Exceptional performance = 100% Short Term Incentive Financial performance: against budget 40% Long Term Incentive: s 50% of Total Fixed Remuneration, Operational performance: against business plan 30% set in advance for a rolling three year Leadership, health & safety, environment, people 30% period and assessed at the end of the 100% period. Long Term Incentive Base performance = 60% s Create future value: productivity, production capacity, development s Exceptional performance = 100% milestones, secure resources 75% Health & safety 15% Minimum, base and exceptional Environmental liabilities 10% performance targets are set for KPIs and KRAs. These are set annually in 100% accordance with the company’s priorities.
YEAR TO 30 JUNE 2011 YEAR TO 30 JUNE 2012
Board assessed Available & paid Available Board Assessed Paid
Total Fixed Remuneration (TFR) $780,281 $780,281 $805,640 $805,640 $805,640
Short Term Incentive (STI) 2012 $390,191 61% $239,546 $402,820 40.8% $164,350 0.0% $0
Long Term Incentive (LTI) 2009-2012 $390,191 87% $339,812 $402,820 75.5% $304,129 75.5% $304,129 $579,358 $304,129 Total Variable Remuneration (TVR) $780,281 74% Paid September $805,640 58.1% $468,479 37.7% Paid 2011 August 2012
Total Remuneration (TR) $1,560,563 87% $1,359,639 $1,613,280 $1,274,119 68.8% $1,109,769
Total Remuneration reported in Employee Remuneration table on previous page: $1,415,155 $1,347,769 TFR for year plus TVR for previous year
Millerton pit, Stockton Mine.
PG30 The Directors present 2012 the Financial Statements for the year ended 30 June 2012
ACTIVITIES The classification of coal seam gas AUDITORS Solid Energy develops and supplies resources is based on the International In accordance with Section 19 of the natural resource-based products Petroleum Resources Management State Owned Enterprises Act 1986, the and services in New Zealand and System 2007. Office of the Auditor General is auditor internationally. Our specific business for Solid Energy. The Controller and activities are primarily carried out in RESULTS Auditor-General has appointed Alex New Zealand. They include: Skinner of KPMG to act on her behalf. 2012 s Development, production, processing and marketing of: $million The group paid the following – coal and lignites, including derived Net (loss) for the period (40.2) remuneration to the auditors during the products; Dividends paid 30.0 period: – biomass, including wood pellets s !UDIT FEE Equity at beginning of period 519.4 and biofuels; s /THER SERVICES .IL – gas and syngas from coal and Shareholder’s equity at 423.4 30 June 2012 biomass; and – other natural resources that utilise This equity was represented by: our capabilities to provide future Total assets of 1,166.9 options and value. Total liabilities of 743.5 s Conversion of coal, biomass and other natural resources to value- added products including electricity, DIVIDENDS solid fuels, transport fuels and During the year the Directors paid a chemical products. dividend of $30.0 million. Solid Energy will also pursue the development of related business ACCOUNTING POLICIES activities that are consistent with our Accounting policies are updated objectives and business plan and add annually to comply with changes in value to our business. accounting standards. The details of minor changes in accounting RESERVE COVER standards are set out in Note 2 (A) of Solid Energy has immediate consented the financial statements. access to 49.9 million tonnes (Mt) of coal reserves, from a total permitted or licensed resource base of 1925 Mt. The classification of Resources and Reserves is based on the AusIMM JORC Code for Reporting of Mineral Resources (see page 10).
In addition, Solid Energy has coal seam gas reserves of 30.4 petajoules (PJ) and resources of 910 PJ.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG31 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M Revenue 4 (A) 978.4 828.7 946.7 797.2 Cost of sales 4 (B) (820.9) (654.8) (757.9) (609.8) Gross profit 157.5 173.9 188.8 187.4 Other income 4 (C) 4.4 2.6 2.2 1.2 Exploration, evaluation and development 4 (D) (37.6) (29.9) (35.7) (29.7) Shared services and administrative expenses 4 (E) (29.1) (31.0) (28.9) (30.1) Other expenses 4 (F) (0.8) - (42.9) (18.8) (Impairment)/impairment reversal 4 (G) (149.2) 1.4 (156.4) 4.1 Results from operating activities (54.8) 117.0 (72.9) 114.1 Realised and unrealised gains on derivatives 4 (H) 41.0 36.5 39.3 36.3 Finance income 4 (H) 1.5 1.5 1.0 1.2 Finance expenses 4 (H) (27.8) (21.0) (27.7) (22.3) Net finance benefit 14.7 17.0 12.6 15.2 Share of (loss) of jointly controlled entities 15 - (6.5) - - (Loss)/profit before income tax (40.1) 127.5 (60.3) 129.3 Income tax benefit/(expense) 5 (0.1) (40.3) (12.4) (39.2) (Loss)/profit after tax (40.2) 87.2 (72.7) 90.1
Other comprehensive income Effective portion of changes in fair value of cashflow hedges 24 (36.4) 11.9 (35.8) 11.8 Income tax benefit/(expense) on fair value of cashflow hedges 5(B)/24 10.5 (3.0) 10.0 (2.9) Other comprehensive (loss)/income for the year, (25.9) 8.9 (25.8) 8.9 net of income tax
Total comprehensive (loss)/income for the year (66.1) 96.1 (98.5) 99.0
Total comprehensive (loss)/income attributable to: Members of the parent (66.1) 96.1 (98.5) 99.0 Total comprehensive (loss)/income for the year (66.1) 96.1 (98.5) 99.0
The accompanying notes form an integral part of these financial statements. PG32 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
Current assets Cash and cash equivalents 6 2.3 11.4 1.9 3.6 Trade and other receivables 7 96.8 139.5 250.9 279.2 Derivatives 9 1.9 32.5 1.8 32.2 Inventories 10 93.9 111.0 88.0 99.3 Stripping in advance 38.4 69.8 38.4 69.8 Crown receivable 21 22.1 30.7 22.1 30.7 Assets classified as held for sale 26 15.7 - - - Total current assets 271.1 394.9 403.1 514.8
Non-current assets Trade and other receivables 7 5.3 5.8 5.3 5.8 Lease receivable 11 1.1 2.0 1.1 2.0 Derivatives 9 0.4 0.6 0.4 0.6 Biological assets 12 0.5 0.9 0.2 - Investment property 13 3.7 5.7 3.7 5.7 Other investments 14 4.8 4.8 36.9 69.8 Investments in jointly-controlled entities 15 - 2.6 - - Deferred tax asset 5 42.0 - 15.1 - Property, plant and equipment 16 412.9 433.1 304.5 293.1 Mining assets 17 281.5 216.5 237.0 216.2 Non-current stripping in advance 84.0 13.8 84.0 13.8 Crown receivable 21 58.5 50.4 58.5 50.4 Intangible assets 18 1.1 2.4 1.1 2.3 Total non-current assets 895.8 738.6 747.8 659.7 Total assets 1,166.9 1,133.5 1,150.9 1,174.5
Current liabilities Bank overdraft and overnight cash facilities 6 - 2.0 - 2.0 Accounts payable and accruals 19 140.6 125.4 131.8 121.0 Derivatives 9 1.8 1.7 1.8 1.6 Tax payable 5 4.4 5.7 3.5 5.0 Interest-bearing borrowings 20 - - 42.9 38.8 Provisions 21 71.0 68.2 69.4 65.8 Liabilities associated with assets classified as held for sale 26 1.5 - - - Total current liabilities 219.3 203.0 249.4 234.2
Non-current liabilities Term accounts payable and accruals 19 15.7 - - - Term interest-bearing borrowings 20 295.0 220.0 295.0 220.0 Term lease liability 22 10.9 11.4 10.9 11.4 Derivatives 9 5.2 1.2 4.9 1.2 Deferred tax liability 5 - 11.1 - 8.9 Investment deficit in jointly-controlled entities 15 0.7 - - - Term provisions 21 196.7 167.4 187.8 167.4 Total non-current liabilities 524.2 411.1 498.6 408.9 Total liabilities 743.5 614.1 748.0 643.1 Net assets 423.4 519.4 402.9 531.4
Equity Issued capital 23 60.9 60.9 60.9 60.9 Retained earnings 366.0 436.1 345.4 448.1 Cashflow hedge reserve 24 (3.5) 22.4 (3.4) 22.4 Total equity 423.4 519.4 402.9 531.4 Signed for and on behalf of the Board of Directors, which authorised the issue of the Financial Report on 30 August 2012.
John Palmer (Chairman) John McDonald (Director) The accompanying notes form an integral part of these financial statements.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG33 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012
Attributable to equity holders of the parent
Issued Retained Cash Flow Total see Hedge GROUP Capital Earnings Reserve Equity notes note 23 note 24 $M $M $M $M As at 1 July 2011 60.9 436.1 22.4 519.4 Other adjustments to retained earnings - 0.1 - 0.1 Total comprehensive (loss) for the year - (40.2) (25.9) (66.1) Transactions with owners in their capacity as owners: Dividends 29 - (30.0) - (30.0)
As at 30 June 2012 60.9 366.0 (3.5) 423.4
As at 1 July 2010 60.9 368.9 13.5 443.3 Total comprehensive income for the year - 87.2 8.9 96.1 Transactions with owners in their capacity as owners: Dividends 29 - (20.0) - (20.0)
As at 30 June 2011 60.9 436.1 22.4 519.4
Issued Retained Cash Flow Total Capital Earnings Hedge Equity see Reserve PARENT notes note 23 note 24 $M $M $M $M As at 1 July 2011 60.9 448.1 22.4 531.4 Total comprehensive (loss) for the year - (72.7) (25.8) (98.5) Transactions with owners in their capacity as owners: Dividends 29 - (30.0) - (30.0)
As at 30 June 2012 60.9 345.4 (3.4) 402.9
As at 1 July 2010 60.9 378.0 13.5 452.4 Total comprehensive income for the year - 90.1 8.9 99.0 Transactions with owners in their capacity as owners: Dividends 29 - (20.0) - (20.0)
As at 30 June 2011 60.9 448.1 22.4 531.4
The accompanying notes form an integral part of these financial statements.
PG34 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
Cash flows from/(used in) operating activities Cash was provided from: Customers 977.8 854.8 941.0 810.9 Interest received 0.8 0.4 1.0 0.1 978.6 855.2 942.0 811.0 Cash was applied to: Payments to suppliers and employees (755.1) (656.5) (708.5) (614.0) Exploration and evaluation expenditure (37.6) (9.6) (35.7) (9.6) Tax paid (28.9) (49.0) (27.6) (48.1) Interest paid (14.8) (11.2) (18.8) (11.2) (836.4) (726.3) (790.6) (682.9) Net cash flows from operating activities 25 142.2 128.9 151.4 128.1
Cash flows from/(used in) investing activities Cash was provided from: Borrowing from subsidiary - - 4.1 6.5 Acquisition of subsidiary (net of cash acquired) 26 4.2 - - - Proceeds from sale of biological assets 2.1 2.4 - 2.2 Proceeds from sale of property, plant and equipment 4.9 0.6 2.2 0.3 11.2 3.0 6.3 9.0 Cash was applied to: Purchase of property, plant and equipment (83.7) (76.5) (73.0) (72.4) Capitalised interest (1.6) (1.3) (1.4) (1.3) Purchase of biological assets (1.7) (2.3) (0.2) - Investment in intangible assets (0.3) - (0.4) - Investment in mining assets (78.7) (37.6) (47.8) (37.6) Investment in other non-current assets - (0.2) - - Loans to subsidiaries - - (80.0) (14.6) (166.0) (117.9) (202.8) (125.9) Net cash flows from investing activities (154.8) (114.9) (196.5) (116.9)
Cash flows from/(used in) financing activities Cash provided was provided from: Bonds and bank loans 75.0 45.0 75.0 45.0 Repayment of lease receivable 0.9 0.7 0.9 0.7 75.9 45.7 75.9 45.7 Cash was applied to: Repayment of loans acquired on acquisition of subsidiary 26 (39.9) - - - Payment of dividend 29 (30.0) (20.0) (30.0) (20.0) Repayment of lease liability (0.5) (0.5) (0.5) (0.5) (70.4) (20.5) (30.5) (20.5) Net cash flows from financing activities 5.5 25.2 45.4 25.2
Net (decrease)/increase in cash and cash equivalents (7.1) 39.2 0.3 36.4 Opening cash and cash equivalents 9.4 (29.8) 1.6 (34.8) Closing cash and cash equivalents 6 2.3 9.4 1.9 1.6
The accompanying notes form an integral part of these financial statements.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG35 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2012
1. CORPORATE INFORMATION
These financial statements are for Solid Energy New Zealand Ltd (‘’Solid Energy’’), its subsidiaries and jointly-controlled entities as per note 28.
Solid Energy is a profit-oriented company incorporated in New Zealand. Solid Energy is registered under the Companies Act 1993.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Preparation and Statement of Compliance The financial statements for the year ended 30 June 2012 have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand and the requirements of the Companies Act 1993, the Financial Reporting Act 1993, and the State Owned Enterprises Act 1986.
The financial statements comply with New Zealand equivalents to International Financial Reporting Standards, and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International Financial Reporting Standards (IFRS).
The financial statements have been prepared on an historical cost basis, except for: s )NVESTMENT PROPERTY BIOLOGICAL ASSETS DERIVATIVE lNANCIAL INS TRUMENTS AND AVAILABLE FOR SALE lNANCIAL ASSETS THAT HAVE BEEN MEASURED AT FAIR VALUE s 0ROVISIONS WHICH ARE MEASURED AT NET PRESENT VALUE AND s 4ANGIBLE MINING ASSETS WHICH INCLUDE CAPITALISED REHABILITATION PROVISIONS
The financial statements are presented in New Zealand dollars and all values are rounded to the nearest one-tenth of one million dollars ($ million).
New accounting standards and interpretations (i) Changes in accounting policy and disclosures The accounting policies adopted are consistent with those of the previous financial year. Where necessary the analysis of certain comparatives has been amended to improve the information provided to the reader.
(ii) Solid Energy has elected not to early adopt the following relevant standards which have been issued but are not yet effective for the group: s .: )&23 &INANCIAL )NSTRUMENTS EFFECTIVE FOR THE REPORTING PERIOD COMMENCING *ULY The first phase of NZ IFRS 9 Financial Instruments addresses the classification and measurement of financial assets. At this stage it is expected that the new standard will only have a minor impact on the classification and measurement of Solid Energy’s current financial assets.
s .: )&23 #ONSOLIDATED &INANCIAL 3TATEMENTS EFFECTIVE FOR THE REPORTING PERIOD COMMENCING *ULY 4HIS STANDARD INTRODUCES A NEW approach to determining which investees should be consolidated. The standard was issued in June 2011 and the impact on the group’s financial statements has not yet been concluded.
s .: )&23 *OINT !RRANGEMENTS EFFECTIVE FOR THE REPORTING PERIOD COMMENCING *ULY This standard focuses on the rights and obligations of joint arrangements rather than the legal form. The standard was issued in June 2011 and the impact on the group’s financial statements has not yet been concluded.
s .: )&23 $ISCLOSURE OF )NTERESTS IN /THER %NTITIES EFFECTIVE FOR THE REPORTING PERIOD COMMENCING *ULY This standard contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements and associates. The standard was issued in June 2011 and the impact on the group’s financial statements has not yet been concluded.
s .: )&23 &AIR 6ALUE -EASUREMENT EFFECTIVE FOR THE REPORTING PERIOD COMMENCING *ULY This standard replaces the fair value measurement guidance within individual standards with a single source of fair value measurement guidance. The standard was issued in June 2011 and the impact on the group’s financial statements has not yet been concluded.
s )&2)# 3TRIPPING #OSTS EFFECTIVE FOR THE REPORTING PERIOD COMMENCING *ULY This standard provides guidance on the treatment of production phase stripping costs. The standard was issued in October 2011 and the impact on the group’s financial statements has not yet been concluded.
(B) Basis of Consolidation The consolidated financial statements comprise the financial statements of Solid Energy and its subsidiaries at year end (“the group”). The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.
Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting year during which Solid Energy has control.
Investments in subsidiaries held by Solid Energy are accounted for at cost in the separate financial statements of the parent entity. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition (see note 2(C) ).
PG36 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(C) Business Combinations The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or operations are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination.
Except for non-current assets or disposal groups classified as held for sale (which are measured at fair value less costs to sell), all identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of the business combination over the net fair value of the group’s share of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the group’s share of the net fair value of the identifiable net assets of the subsidiary, the difference is recognised as a gain in profit or loss, but only after a reassessment of the identification and measurement of the net assets acquired.
(D) Foreign Currency Translation Both the functional and presentation currency of Solid Energy and its New Zealand subsidiaries is New Zealand dollars ($). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the reporting date. All differences in monetary assets and liabilities in the consolidated financial statements are taken to profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
(E) Revenue, Finance Income and Other Income Revenue, finance income and other income are recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Revenue Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered to have passed to the buyer at the time of delivery of the goods to the customer. For free on board export shipments delivery is deemed to have taken place once the ship is fully loaded and the bill of lading is issued.
Finance Income Interest Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.
Dividends Revenue is recognised when the shareholders’ right to receive the payment is established.
Other Income Rental income Rental income arising on properties is accounted for on a straight-line basis over the lease term.
(F) Income Tax Income tax comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly into equity. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences: i) Except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and ii) In respect of taxable temporary differences associated with investments in subsidiaries and interests in jointly controlled entities, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: i) Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and ii) In respect of deductible temporary differences associated with investments in subsidiaries and interests in joint ventures.
Deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG37 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(G) GST Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except: i) Where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and ii) For receivables and payables which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as an operating cash flow. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
(H) Property, Plant and Equipment The group has five classes of property, plant and equipment: s Land, buildings and structures; s Leasehold improvements; s Plant and equipment; s Leased infrastructure asset; and s Capital work in progress.
Depreciation Land is carried at cost less any impairment losses. Land is not depreciated. Capital work in progress is carried at cost less any impairment losses. Capital work in progress is not depreciated. When an item of capital work in progress is commissioned it transfers to the appropriate property, plant and equipment category and depreciation commences.
All other property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the assets’ expected economic life. Leased assets are depreciated over the shorter of the lease term and their useful economic lives. The expected economic lives of assets are as follows: s "UILDINGS AND STRUCTURES TO YEARS s ,EASEHOLD IMPROVEMENTS ,EASE TERM s 0LANT AND EQUIPMENT TO YEARS s ,EASED INFRASTRUCTURE ASSET YEARS
Depreciation methods, useful lives and residual values are reassessed at the reporting date. Property, plant and equipment under construction are recorded as work in progress and are not depreciated until they are ready for productive use.
Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in profit or loss.
(I) Biological Assets The group has two groups of biological assets, forestry and crop assets.
Forestry assets Forest assets are measured at fair value less point-of-sale costs, which include all costs that would be necessary to sell the assets. A gain or loss arising on initial recognition, or from a change in fair value less estimated point-of-sale costs, is included in profit or loss for the period in which it arises.
Crop assets Planted crop assets are stated, on initial recognition and at each reporting date, at fair value less estimated point-of-sale costs. Harvested crop assets are transferred to inventories at fair value less estimated point-of-sale costs at the point of harvest. A gain or loss arising on initial recognition, or from a change in fair value less estimated point-of-sale costs, is included in profit or loss for the period in which it arises.
(J) Mining Assets Mining assets includes exploration and evaluation, mines in development and mines in production, for both tangible and intangible assets.
Tangible mining assets (i) Exploration and evaluation Exploration, evaluation and development expenditure is stated at cost and is accumulated in respect of each identifiable area of interest. Expenditure is only carried forward to the extent that it is expected to be recouped through the successful development of the area of interest (or alternatively by its sale), or where activities in the area have not yet reached a stage which permits a reasonable assessment of the existence, or otherwise, of economically recoverable reserves.
PG38 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(ii) Mines in development Once a decision is made to proceed with commercial production, the expenditure incurred on successful areas of interest is reclassified as “Mines in development”.
(iii) Mines in production Mining assets are transferred to “Mines in production” in the year production commences.
Mine production assets, comprising successful areas of interest, subsequent development expenditure and capitalised rehabilitation provisions are amortised to profit or loss over the remaining productive life of the operation on a unit of production basis, subject to a maximum production period of 20 years.
Accumulated costs in relation to an abandoned area are written off in full in the period in which the decision is made to abandon the area.
Intangible mining assets Mineral reserve assets comprise mining rights and mining licences and are classified between exploration and evaluation, mines in development and mines in production as per tangible assets above. Mineral reserve assets are stated at cost less any accumulated amortisation and impairment loss. Amortisation is charged to profit or loss on mineral reserve assets on a straight-line basis over the estimated useful life of the mineral right. The estimated useful life of mineral right assets is subject to a maximum of 20 years.
(K) Intangible Assets Goodwill Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is not amortised. Goodwill is reviewed for impairment at each reporting date, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.
Intellectual property Intellectual property is measured at cost less accumulated amortisation and accumulated impairment losses. The amortisation period is 5 years.
Emission Trading Scheme (ETS) units As of 1 July 2010 the transport, energy and industrial sectors joined the forestry sector in having obligations under the New Zealand Emission
Trading Scheme (ETS). Solid Energy is required to account for CO2 equivalent emissions associated with designated activities, principally the mining and selling of coal. Solid Energy, as a coal miner, is designated as a default participant for the coal that it mines and is required to surrender eligible emissions units associated with coal sold domestically and directly associated with mining coal that is subsequently EXPORTED 6ERY LARGE CUSTOMERS CAN ELECT TO MANAGE THE OBLIGATION THEMSELVES
Up to 31 December 2012, Solid Energy will be required to surrender 1 eligible emission unit for every 2 tonnes of CO2 equivalent emitted. These units can be sourced: s 4HROUGH THE PURCHASE OF UNITS s $IRECTLY FROM PROJECTS THAT REDUCE EMISSIONS s 6IA ALLOCATION BY THE 'OVERNMENT AS COMPENSATION FOR %43 COSTS OR s "Y PAYING A lXED PRICE OF PER EMISSION UNIT TO THE GOVERNMENT
New Zealand Units, Removal Units, Certified Emissions Reductions and Emission Reduction Units are all valid ETS units which can be purchased to satisfy ETS obligations. Purchased ETS units are recognised as an intangible asset and measured at cost. ETS units are purchased in order to settle ETS obligations and are therefore not amortised.
(L) Investment Property Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met, and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which is based on active market prices, adjusted if necessary, for any difference in the nature, location or condition of the specific asset at the reporting date. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise.
Investment properties are de-recognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.
For a transfer from investment property to owner-occupied property or inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the group as an owner-occupied property becomes an investment property, the group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG39 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(M) Interest in Jointly-Controlled Entities Jointly-controlled entities are those entities over whose activities the group has joint control established by contractual agreement. The group has an interest in a joint venture that is a jointly-controlled entity.
The interest in a joint venture entity is accounted for in the consolidated financial statements using the equity method of accounting and is carried at cost by the parent entity. Under the equity method, the group’s share of the results of the joint venture entity is recognised in profit or loss, and the share of movements in reserves is recognised in the statement of financial position.
(N) Other Investments All other investments are initially recognised at fair value, being the consideration given and, in the case of an investment not at fair value, through profit or loss, including acquisition costs associated with the investment. After initial recognition, investments which are classified as available-for-sale, are measured at fair value.
Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in profit or loss.
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the group has the positive intention and ability to hold to maturity. Other long-term investments that are intended to be held to maturity, such as bonds, are subsequently measured at amortised cost using the effective interest method.
Amortised cost is calculated by taking into account any discount or premium on acquisition over the period to maturity. For investments carried at amortised cost, gains and losses are recognised in income when the investments are de-recognised or impaired. Purchases and sales of financial assets that require delivery of assets within the time-frame generally established by regulation or convention in the marketplace are recognised on the trade date, i.e. the date that the group commits to purchase the asset.
(O) Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Group as a lessee Finance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are included in profit or loss as finance costs. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as the lease payments. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The cost of improvements to leasehold properties is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter.
Group as a lessor Leases which transfer substantially all the risks and benefits incidental to ownership of the leased item are classified as finance leases. Finance lease receivables are capitalised at the inception of the lease at the fair value of the leased assets or, if lower, at the present value of the minimum lease payments. Operating lease receipts are recognised as other income in profit or loss on a straight-line basis over the lease term.
(P) Impairment of Mining and Other Non-Current Assets The carrying amount of land, mineral reserve assets, exploration, evaluation and development expenditure and stripping in advance are reviewed at each reporting date to determine whether there is an indication of an impairment loss. If any such indication exists, the assets recoverable amount is estimated. For any asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If the carrying amount of the asset (or cash-generating unit) exceeds this recoverable amount, the asset (or cash-generating unit) is written down. The recoverable amount of an asset is determined as the higher of its net SELLING VALUE AND VALUE IN USE 6ALUE IN USE IS DETERMINED BY ESTIMATING FUTURE CASH mOWS AND DISCOUNTING THEM TO THEIR PRESENT VALUE USING A risk-adjusted pre-tax discount rate appropriate to the risks inherent in the asset.
Equity instruments are deemed to be impaired when there is a significant or prolonged decline in the fair value below the original purchase price. The recoverable amount of the group’s investments in held-to-maturity debt instruments and receivables carried at cost is calculated as the present value of estimated cashflows, discounted at the original effective interest rate. Receivables with a short duration are not discounted. When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(Q) Inventories Inventories of by-product and saleable coal are valued at the lower of weighted average cost or net realisable value. By-product coal is contaminated and diluted coal which requires significant further processing to become saleable. When both saleable coal and by-product coal are produced from an operation the costs are allocated based on the relative net realisable values of the two products at the point they become separately identifiable.
PG40 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Costs include direct material, labour and transportation expenditure incurred in getting such inventories to their existing location and condition, together with an appropriate portion of overhead expenditure.
Inventories of materials, consumable supplies and maintenance spares expected to be used in production are valued at weighted average cost. Surplus and obsolete inventories are valued at net realisable value if lower than cost.
Inventories of harvested crops are valued at the lower of fair value less estimated point-of-sale costs at the point of harvest or net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
(R) Stripping in Advance Overburden and other waste materials are often removed in order to access the coal reserve. This activity is referred to as stripping.
s $EVELOPMENT STRIPPING IS STRIPPING THAT OCCURS DURING THE INITIAL DEVELOPMENT OF A MINE SITE AND s 0RODUCTION STRIPPING IS STRIPPING THAT COMMENCES AT THE TIME THAT SALEABLE MATERIALS BEGIN TO BE EXTRACTED FROM THE MINE
Development stripping Directly attributable costs of development stripping are capitalised and classified as ‘Stripping (non-current and current)’.
Capitalisation ceases and depreciation of those capitalised costs commences at the time that saleable materials begin to be extracted from the mine. Depreciation of capitalised development stripping costs is determined on a unit of production basis for each separate area of interest.
Production stripping Total production stripping costs are charged to profit or loss in the period which matches the proportion of coal extracted to the total proven and probable reserves expected from the mine.
Assumptions regarding the remaining overburden, units of production and estimated mine life are re-assessed on a quarterly basis.
Impairment Stripping in Advance and Mining Properties are considered in combination with other assets of an operation for the purpose of undertaking impairment assessments.
(S) Derivative Financial Instruments and Hedging The group uses derivative financial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Solid Energy’s treasury policy does not allow derivative financial instruments to be held or issued for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at fair value and retested on this basis at each reporting period. The gain or loss on re-measurement to fair value is recognised immediately in profit or loss unless the derivatives meet the criteria for hedge accounting (see below).
Cash flow hedges Cash flow hedges (forward foreign currency contracts and interest rate swaps) are used to hedge the foreign currency and interest rate risk of forecast transactions which meet the conditions for hedge accounting. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in profit or loss. For all cash flow hedges, the gains or losses that are recognised in equity are transferred to profit or loss in the same year in which the hedged forecasted transaction affects the net profit and loss, for example when the future sale actually occurs.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year.
De-recognition of derivative financial instruments The de-recognition of a financial instrument takes place when the group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.
(T) Accounts Receivable Trade receivables Accounts receivable, which generally have 30-90 day terms, are recognised and carried at the invoice amount less an allowance for any uncollectible amounts.
Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the group will not be able to collect the receivable. Financial difficulties of the debtor and default on payments are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG41 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Related party receivables An impairment assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates to determine whether there is objective evidence that a related party receivable is impaired. When such evidence exists, the group recognises an allowance for the impairment loss.
(U) Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and in hand, short-term deposits with an original maturity of three months or less and bank overdrafts and overnight cash facilities.
(V) Provisions Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the group expects some or all of a provision to be reimbursed, for example the Crown’s share of end of mine life rehabilitation costs, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement, except for rehabilitation costs (see below).
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Onerous contracts A provision is made for onerous contracts when the net present value of any contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
Rehabilitation costs The group is required under the terms of its mining licences to rehabilitate mine sites at the end of their productive lives to a condition acceptable to the relevant authorities and consistent with the group’s environmental policies. The estimated cost of any end of mine life rehabilitation is provided for at the commencement of the mining project, with a corresponding asset recognised in relation to the mine site. Measurement of the rehabilitation provision is on the basis of expected future costs discounted using a risk-free rate.
Any increases in the rehabilitation provision that relate to the ongoing production of the mine are expensed as the obligation arises. Any other change in the net present value of rehabilitation costs, including those resulting from new disturbances, updated cost estimates and changes to the lives of operations are capitalised to mine assets. Changes in net present value relating purely to discounting future values are reflected in interest expense.
Mobile plant costs Mobile plant costs comprise mobilisation, demobilisation and mobile plant leased maintenance cost provisions. Mobilisation costs are those costs incurred in relocating contractor mobile plant to the mine site at the start of the contract. Mobilisation costs are initially recorded in prepayments and amortised over the life of the contract. Mobilisation assets are included within prepayments and mobilisation liabilities are included within provisions.
Demobilisation costs are those costs relating to the cost of removing mobile plant fleet from the mine site at the end of the contract. Demobilisation costs are provided for at the start of the contract and are amortised over the life of the contract.
The group is required to maintain leased mine site mobile plant equipment to a minimum standard under the lease agreements and to pay for costs associated with the removal of mobile plant fleets from the mine sites at the end of the contracts. The costs required to replace worn components and tyres on mine site mobile plant fleets are provided for based on the number of hours the mobile plant has been used. Costs associated with the removal of the fleet at the end of the contracts are provided for at the start of the mining contract and are amortised over the life of the contract.
(W) Crown Receivable The group has an indemnity from the Crown for its share of end of mine life rehabilitation costs relating to mining assets prior to 1 April 1987. Measurement of the Crown receivable is on the basis of expected future costs discounted using a risk-free rate.
(X) Interest-Bearing Loans and Borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in profit or loss when the liabilities are de-recognised and as well as through the amortisation process.
Borrowing Costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Qualifying assets are those that take a significant amount of time to get ready for their intended use or sale. Capitalisation of borrowing costs is not applied to the borrowing costs associated with mining assets in the exploration and evaluation phase or to assets held for potential future mining activities.
Other borrowing costs are recognised as an expense as incurred.
PG42 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(Y) Accounts Payable Trade and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the group prior to the end of the financial year that are unpaid and arise when the group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.
(Z) Employee Entitlements Long-term employee entitlements Long-term employee entitlements such as long service leave and other entitlements that are vesting are recognised when they accrue to employees. Liabilities are accrued on an actuarial basis in respect to entitlements that are vested and expected to crystallise in the future.
Short-term employee entitlements Short-term employee entitlement obligations such as salaries and wages and annual leave are expensed as the related service is provided.
Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss when they are due.
(AA) Non-current assets held for sale or distribution Non-current assets, or disposal groups comprising assets and liabilities, that are expected be be recovered primarily through sale or distribution rather than continuing use, are classified as held for sale or distribution. Immediately before classification as held for sale or distribution, the assets, or components of a disposal group, are remeasured in accordance with the group’s accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is first allocated to goodwill and then to remaining assets and liabilities on a pro rata basis except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale or distribution and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.
Once classified as held for sale or distribution, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted.
3. DETERMINATION OF FAIR VALUES
A number of the group’s accounting polices and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
(A) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment and leasehold improvements is based on the quoted market prices for similar items.
(B) Biological assets The fair value of forest assets are determined at each balance date based on the net present value of cash flows expected to be generated by the forest, discounted at a current market-determined rate which reflects the risks associated with the forest and the market value of the land on which the trees are growing. The fair value of crop assets equates to the costs incurred in bringing the crop to its existing state at balance date. This balance is compared to the present value of the net cash flows expected to be generated by the crop given its present location and condition to substantiate this valuation methodology.
(C) Investment property The fair value of investment property is based on active market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties HAD EACH ACTED KNOWLEDGEABLY PRUDENTLY AND WITHOUT COMPULSION 6ALUATIONS ARE PERFORMED BY AN EXTERNAL INDEPENDENT VALUATION COMPANY having appropriate recognised professional qualifications and experience in the location and category of property being valued.
(D) Investments in equity and debt securities For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another comparable instrument which is substantially the same or by reference to the quoted repurchase price for co-operative shares.
(E) Derivatives The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair values of financial instruments that are not traded in an active market are determined using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date. Fair values reflect the credit risk of the financial instrument and include adjustments to take account of the credit risk of the group and counterparty when appropriate.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG43 4. REVENUE, INCOME AND EXPENSES
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
(A) Revenue Sale of goods 976.2 824.5 944.5 793.0 Services provided to jointly-controlled entity 2.2 4.2 2.2 4.2 978.4 828.7 946.7 797.2
(B) Cost of sales Coal production costs (625.5) (487.0) (619.6) (488.8) Renewables production costs (42.1) (25.9) (5.7) (5.9) Depreciation (46.4) (34.1) (35.4) (28.3) Amortisation of mining assets 17 (16.9) (14.4) (16.1) (14.3) Distribution, direct selling and other costs (90.0) (93.4) (81.1) (72.5) (820.9) (654.8) (757.9) (609.8)
(C) Other income Rental income 2.7 2.6 1.3 1.1 Surplus on sale of property, plant and equipment 1.7 - 0.9 0.1 4.4 2.6 2.2 1.2
(D) Exploration, evaluation and development expenses Non-coal development expensed (19.4) (19.5) (19.4) (19.5) Coal exploration and evaluation expenditure (16.9) (9.6) (15.1) (9.6) Research and development expensed (1.3) (0.8) (1.2) (0.6) (37.6) (29.9) (35.7) (29.7)
(E) Shared services and administrative expenses comprise: Bad debts (0.2) - (0.2) - Auditor's remuneration comprises: Audit of the financial statements (0.2) (0.2) (0.2) (0.2) Total Auditor's remuneration (0.2) (0.2) (0.2) (0.2)
Directors' fees (0.4) (0.4) (0.4) (0.4) Sponsorship (1.5) (2.7) (1.5) (2.7) Depreciation (4.7) (4.5) (4.7) (4.5) Shared services (8.5) (8.4) (8.5) (8.4) Other administrative expenses including personnel, travel, (13.6) (14.8) (13.4) (13.9) professional services, utilities and premise costs (29.1) (31.0) (28.9) (30.1)
(F) Other expenses Subvention expense - - (42.1) (18.8) Fair value movement (0.8) - (0.8) - (0.8) - (42.9) (18.8)
(G) (Impairment)/impairment reversal* (Impairment)/impairment reversal of property, plant and (150.1) 3.9 (52.3) 3.9 equipment and mining assets (i) - (vii) Impairment reversal/(impairment) of other receivable (ii) 2.5 (2.5) 2.5 (2.5) Impairment of goodwill (viii) (1.6) - (1.6) - (Impairment)/impairment reversal of loans to subsidiary (ix) - - (72.3) 2.7 Impairment of investment in subsidiary (x) - - (32.7) - (149.2) 1.4 (156.4) 4.1
PG44 4. REVENUE, INCOME AND EXPENSES (continued)
(G) * (Impairment)/impairment reversal
I .EW 6ALE n $URING THE YEAR ENDED *UNE A MILLION IMPAIRMENT OF .EW 6ALE MINE WAS REVERSED AS A CONSEQUENCE OF IMPROVED sales contracts at the mine.
(ii) Ignite – Solid Energy has spent $2.1 million on intangible mining assets and provided loans of $2.5 million towards securing New Zealand rights to a developing technology which converts low energy feedstocks, such as lignite and biomass, to high grade coal and synthetic crude oils that can be upgraded to transport fuel. The investment and loan was impaired in the year ended 30 June 2011. During the year ended 30 June 2012, $2.5 million of loans were repaid.
(iii) Natures Flame – During the year Solid Energy impaired its wood pellet subsidiary by $24.5 million as international markets weakened resulting in idle capacity which looks likely to remain for some time given the strength of the NZD. The company also wrote down raw material stocks by $4.3 million as well as recognising onerous provisions related to feedstock supply contracts of $1.6 million (included in Production Costs in the Statement of Comprehensive Income). The recoverable amount of the cash generating unit is based on its value in use in accordance with Note 2 (P) Impairment of Mining and Other Non-Current Assets. The nominal post-tax discount rate used in measuring value in use was 11.2% (2011: 10.8%).
(iv) Biodiesel – A review of the biodiesel subsidiary, taking into account current low diesel prices, the end of the Government’s Biodiesel Grant Scheme and following removal of the previously mandated biofuel requirements, has resulted in an impairment of $9.0 million for the year ended 30 June 2012 following the transfer of these assets to the held for sale classification.
(v) Coal Seam Gas – The company wrote down its investment in the Huntly coal seam gas demonstration plant by $18.5 million as it intends to close the Huntly plant and refocus work on its Taranaki permits.
(vi) Spring Creek Mine – The weakening export coal market and fall in market pricing, along with difficult mine development conditions due to the geology of the mine, resulted in an impairment of the Spring Creek Mine assets of $64.3 million. The recoverable amount of the cash generating unit is based on fair value.
(vii) Huntly East Mine – The weakening coal market and low forecast coal prices along with difficult mine development conditions due to the geology of the mine, resulted in an impairment of the Huntly East Mine of $33.8 million. The recoverable amount of the cash generating unit is based on fair value.
(viii) Switch – The business has a consistent history of losses. With no material change in the business profitability forecast $1.6 million of goodwill was impaired.
(ix) Subsidiary loans – The parent company, Solid Energy New Zealand Limited, provides funding to subsidiaries. The funding is repayable on demand.
At 30 June 2012, the following entities did not have sufficient equity to repay funding they had received and an (impairment)/impairment reversal of the balance was provided for in the parent company as follows:
PARENT 2012 2011 $M $M Biodiesel (6.5) 2.7 Solid Energy Renewable Fuels (24.2) - Spring Creek Mining Company (41.6) - (72.3) 2.7
(x) Investment in subsidiary – The parent company, Solid Energy New Zealand Limited, has fully impaired its investment of $32.7 million in Spring Creek Mine Holdings Limited as a result of the weakening export coal market and fall in market pricing, along with difficult mine development conditions due to the geology at Spring Creek Mine.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG45 4. REVENUE, INCOME AND EXPENSES (continued)
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
(H) Finance related income/(expenses) Realised and unrealised gains/(losses) on derivatives: Net gain on fair value of cash flow hedges transferred from 39.9 36.7 38.0 36.6 equity on realisation Ineffective portion of changes in fair value of cash flow hedges 1.1 (0.2) 1.3 (0.3) 41.0 36.5 39.3 36.3 Finance income: Interest income from bank deposits 0.8 0.4 0.3 0.1 Interest income from jointly-controlled entity 0.7 1.1 0.7 1.1 1.5 1.5 1.0 1.2 Finance expenses: Interest expense (13.9) (11.2) (14.2) (11.2) Interest expense intercompany - - (3.2) (1.3) Foreign exchange option costs (2.5) (2.3) (2.5) (2.3) Other finance expenses (6.8) (3.3) (3.3) (3.3) Discount rate unwind on term provisions (4.6) (4.2) (4.5) (4.2) (27.8) (21.0) (27.7) (22.3)
Net finance benefit 14.7 17.0 12.6 15.2
(I) Included within cost of sales and administrative expenses are: Depreciation 16 (51.1) (38.6) (40.1) (32.8) Operating lease payments (23.4) (21.7) (20.2) (17.7) Personnel costs: Wages and salaries (155.7) (132.9) (151.3) (130.9) Contributions to defined contribution plans (7.4) (6.3) (7.3) (6.2) (163.1) (139.2) (158.6) (137.1)
PG46 5. INCOME TAX
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
(A) Income tax (benefit)/expense Income tax (benefit)/expense can be reconciled to accounting (loss)/profit as follows:
Accounting (loss)/profit before tax (40.1) 127.5 (60.3) 129.3 Tax at the group's statutory income tax rate of 28% (2011: 30%) (11.2) 38.3 (16.9) 38.8 Adjustments in respect of current income tax of previous years (1.1) - (1.0) - Adjustments in respect of deferred income tax of previous years 0.9 0.1 1.4 0.1 Effect of unused tax losses de-recognised (see note 5(E)) 15.2 - - - Tax effect of other expenditure not subject to tax 2.3 0.3 31.6 0.3 Tax effect of income not subject to tax (3.7) - - - Share of loss from jointly-controlled entities - 1.9 - - Depreciation adjustments for buildings (see note 5(D)) (2.6) - (2.4) - Change in tax rate from 30% to 28% - (0.2) - - Group losses utilised in respect of current year - - (12.2) (5.7) Non-deductible subvention expense in respect of prior year - - (0.4) 5.6 Non-deductible subvention expense in respect of current year - - 12.2 - Other 0.3 (0.1) 0.1 0.1 Aggregate income tax expense 0.1 40.3 12.4 39.2
Comprising: Current tax 27.5 39.4 26.1 38.1 Deferred tax (27.4) 0.9 (13.7) 1.1 Income tax expense 0.1 40.3 12.4 39.2
(B) Recognised tax assets and liabilities Current income tax (liability): Opening balance (5.7) (15.4) (5.0) (15.0) Charged to income (27.5) (39.4) (26.1) (38.1) Tax paid 28.9 49.0 27.6 48.1 Other (0.1) 0.1 - - Closing balance (4.4) (5.7) (3.5) (5.0)
Deferred tax asset/(liability): Opening balance (11.1) (7.2) (8.9) (4.8) Charged to income (See note 5(E)) 27.4 (0.9) 13.7 (1.1) Charged to equity (See note 5(F)) 24 10.5 (3.0) 10.0 (2.9) Subsidiary deferred tax balance acquired 15.2 - - - Other - - 0.3 (0.1) Closing balance 42.0 (11.1) 15.1 (8.9)
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG47 5. INCOME TAX (continued)
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M
Deferred income tax at 30 June relates to the following: Deferred tax assets: Provisions 12.4 5.6 8.5 4.9 Derivatives 1.4 - 1.3 - Property, plant & equipment 14.2 - - - Mining assets 11.7 - 2.0 - Employee entitlements 3.5 5.9 3.5 5.9 Other - 1.3 1.0 1.6 Gross deferred tax assets 43.2 12.8 16.3 12.4
Deferred tax liabilities: Derivatives - (8.7) - (8.7) Lease receivable (0.5) (0.7) (0.5) (0.7) Lease liability (0.2) (0.2) (0.2) (0.2) Property, plant & equipment - (9.3) (0.5) (6.7) Mining assets - (5.0) - (5.0) Other (0.5) - - - Gross deferred tax liabilities (1.2) (23.9) (1.2) (21.3)
Net deferred tax assets/(liabilities) 42.0 (11.1) 15.1 (8.9)
(C) Imputation credit account Opening balance 214.0 173.5 200.8 173.1 Prior year adjustment 0.5 5.8 0.2 (5.9) Imputation credit attached to dividends paid in the year (12.9) (8.6) (12.9) (8.6) Income tax payments, adjustments and transfers during the year 28.5 43.3 27.5 42.2 Closing balance 230.1 214.0 215.6 200.8
At balance date the imputation credits available to the shareholders of the parent were: Through direct shareholding in the parent company 215.6 200.8 215.6 200.8 Through shareholding in subsidiaries 14.5 13.2 - - Imputation credit account closing balance 230.1 214.0 215.6 200.8
(D) Accounting impact of depreciation of buildings Legislative changes have removed the ability to depreciate long-life buildings for tax purposes from the start of the 2012 Income year.
Following Government Budget announcements in May 2010, the tax base of the group’s buildings was reduced in anticipation of these changes. In 2012 the group reviewed the group of assets within this category and consequently established a tax base for those assets which were depreciable for tax purposes. This has resulted in the recognition of a deferred tax asset and the reduction of tax expense charged during the year ended 30 June 2012.
(E) Unrecognised deferred tax assets Upon acquisition by Solid Energy on 2 February 2012, Spring Creek Mining Company held $54.2 million of tax losses. These losses continue to be carried forward through the change in ownership, however the resulting deferred tax asset of $15.2 million (2011: $Nil) has been de- recognised and is included as a charge to profit or loss because it is not probable that future taxable profit will be available to utilise these losses.
(F) Charged to equity Amounts charged or credited directly to equity include the net change in fair value of cash flow hedges.
PG48 6. CASH AND CASH EQUIVALENTS
Reconciliation to statement of cash flows For the purpose of the statement of cash flows, cash and cash equivalents comprise the following:
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M
Cash at bank and in hand 2.3 4.4 1.9 3.6 Short-term deposits - 7.0 - - Closing balance 2.3 11.4 1.9 3.6
Liabilities Bank overdraft and overnight facilities - (2.0) - (2.0) Total cash and cash equivalents 2.3 9.4 1.9 1.6
7. TRADE AND OTHER RECEIVABLES
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
Trade receivables 88.0 87.8 91.2 88.9 Allowance for impairment loss (A) (0.1) (0.1) (0.1) (0.1) 87.9 87.7 91.1 88.8
Loans to subsidiaries (B) - - 222.2 140.5 Allowance for impairment loss (B) - - (74.2) (1.9) Closing balance - - 148.0 138.6
Prepayments 13.2 12.6 16.1 12.6 Receivable from jointly-controlled entities (C) - 44.2 - 44.2 Current lease receivable 11 1.0 0.8 1.0 0.8 Total trade and other receivables 102.1 145.3 256.2 285.0
Comprising: Current 96.8 139.5 250.9 279.2 Non-current 5.3 5.8 5.3 5.8 102.1 145.3 256.2 285.0
(A) Allowance for impairment loss Trade receivables are non interest-bearing and are generally on 30-90 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired.
At 30 June, the ageing analysis of trade receivables is as follows:
Total 0-30 days 31-60 days 61-90 days 91+ days PDNI* $M $M $M $M $M
2012 Group 88.0 76.1 11.3 - 0.6 2011 Group 87.8 85.6 1.9 0.1 0.2 2012 Parent 91.2 80.2 10.6 - 0.4 2011 Parent 88.9 87.1 1.7 - 0.1
*Past due not impaired (PDNI) Receivables past due but not considered impaired are: $0.6 million (2011: $0.2 million). Payment terms on these amounts have not been renegotiated however credit has been stopped until full payment is made. Each operating unit has been in direct contact with the relevant debtor and is satisfied that payment will be received in full.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG49 7. TRADE AND OTHER RECEIVABLES (continued)
(B) Loans to subsidiaries The interest rate applicable on loans to subsidiaries is 0% (2011: 0%) which are repayable on demand. For further details on the allowance for impairment loss on loans to subsidiaries see note 4 (G) (ix). For further details on related party receivables refer to note 28.
(C) Receivable from jointly-controlled entities On 2 February 2012, Solid Energy acquired 100% ownership of Spring Creek Mining Company (SCMC). Prior to this date, SCMC was a jointly-controlled entity. Interest on overdue receivables from SCMC has been charged at a rate of 0% (2011: 9%). See note 28 for further details of related party balances with SCMC.
8. FINANCIAL RISK MANAGEMENT
The group’s financial instruments comprise trade receivables, accounts payable, bonds, bank loans, intercompany loans, available-for-sale and held-to-maturity investments, cash and cash equivalents and derivatives. The following tables provide an analysis of financial assets and financial liabilities by category:
Derivatives Available-for- designated see Held-to- Loans and Other financial sale financial as cash flow Total Group notes maturity receivables liabilities assets hedging instruments Year ended 30 June 2012 $M $M $M $M $M $M
Assets: Other investments 14 0.5 - 4.3 - - 4.8 Lease receivable (non-current) 11 - 1.1 - - - 1.1 Derivatives 9 - - - - 2.3 2.3 Trade and other receivables 7 - 88.9 - - - 88.9 (excluding prepayments) Cash and cash equivalents 6 - 2.3 - - - 2.3 Total financial assets 0.5 92.3 4.3 - 2.3 99.4
Liabilities: Derivatives 9 - - - - (7.0) (7.0) Bank overdraft and overnight cash facilities 6 ------Interest-bearing borrowings 20 - - - (295.0) - (295.0) Term lease liability 22 - - - (10.9) - (10.9) Accounts payable and accruals 19 - - - (131.0) - (131.0) (excluding employee entitlements) Total financial liabilities - - - (436.9) (7.0) (443.9)
Derivatives Available-for- designated see Held-to- Loans and Other financial sale financial as cash flow Total Group notes maturity receivables liabilities assets hedging instruments Year ended 30 June 2011 $M $M $M $M $M $M
Assets: Other investments 14 0.5 - 4.3 - - 4.8 Lease receivable (non-current) 11 - 2.0 - - - 2.0 Derivatives 9 - - - - 33.1 33.1 Trade and other receivables 7 - 132.7 - - - 132.7 (excluding prepayments) Cash and cash equivalents 6 - 11.4 - - - 11.4 Total financial assets 0.5 146.1 4.3 - 33.1 184.0
Liabilities: Derivatives 9 - - - - (2.9) (2.9) Bank overdraft and overnight cash facilities 6 - - - (2.0) - (2.0) Interest-bearing borrowings 20 - - - (220.0) - (220.0) Term lease liability 22 - - - (11.4) - (11.4) Accounts payable and accruals 19 - - - (104.4) - (104.4) (excluding employee entitlements) Total financial liabilities - - - (337.8) (2.9) (340.7)
PG50 8. FINANCIAL RISK MANAGEMENT (continued)
Derivatives Available-for- designated see Held-to- Loans and Other financial sale financial as cash flow Total Parent notes maturity receivables liabilities assets hedging instruments Year ended 30 June 2012 $M $M $M $M $M $M
Assets: Other investments 14 - - 0.9 - - 0.9 Lease receivable (non-current) 11 - 1.1 - - - 1.1 Derivatives 9 - - - - 2.2 2.2 Trade and other receivables 7 - 240.1 - - - 240.1 (excluding prepayments) Cash and cash equivalents 6 - 1.9 - - - 1.9 Total financial assets - 243.1 0.9 - 2.2 246.2
Liabilities: Derivatives 9 - - - - (6.7) (6.7) Bank overdraft and overnight cash facilities 6 ------Interest-bearing borrowings 20 - - - (337.9) - (337.9) Term lease liability 22 - - - (10.9) - (10.9) Accounts payable and accruals 19 - - - (106.6) - (106.6) (excluding employee entitlements) Total financial liabilities - - - (455.4) (6.7) (462.1)
Derivatives Available-for- designated see Held-to- Loans and Other financial sale financial as cash flow Total Parent notes maturity receivables liabilities assets hedging instruments Year ended 30 June 2011 $M $M $M $M $M $M
Assets: Other investments 14 - - 0.9 - - 0.9 Lease receivable (non-current) 11 - 2.0 - - - 2.0 Derivatives 9 - - - - 32.8 32.8 Trade and other receivables 7 - 272.4 - - - 272.4 (excluding prepayments) Cash and cash equivalents 6 - 3.6 - - - 3.6 Total financial assets - 278.0 0.9 - 32.8 311.7
Liabilities: Derivatives 9 - - - - (2.8) (2.8) Bank overdraft and overnight cash facilities 6 - - - (2.0) - (2.0) Interest-bearing borrowings 20 - - - (258.8) - (258.8) Term lease liability 22 - - - (11.4) - (11.4) Accounts payable and accruals 19 - - - (100.0) - (100.0) (excluding employee entitlements) Total financial liabilities - - - (372.2) (2.8) (375.0)
The fair values of available-for-sale investments and derivative financial instruments are measured using inputs other than quoted prices in active markets that are observable for these assets and liabilities.
Risk exposures and responses The main risks arising from the group’s operations are interest rate risk, foreign currency risk, price risk, credit risk and liquidity risk. The group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate, foreign exchange and commodity prices. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts. Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for trading in derivatives, hedging cover of foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections.
The group enters into derivative transactions, principally interest rate swaps and forward currency contracts and options. The purpose is to manage the interest rate and currency risks arising from the group’s operations and its sources of finance, in accordance with the group treasury management policy. The objective of the policy is to support the delivery of the group’s financial targets whilst protecting future financial security.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG51
8. FINANCIAL RISK MANAGEMENT (continued)
Interest rate risk The group’s exposure to market interest rates relates primarily to the group’s debt obligations and lease obligations. The level of debt is disclosed in notes 6 and 20 and the operating lease commitments are disclosed in note 27. At balance date, the Group had the following mix of financial assets and liabilities exposed to New Zealand variable interest rate risk that are not designated in cash flow hedges:
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
Financial Assets: Cash at bank and in hand 6 2.3 4.4 1.9 3.6 Total financial assets 2.3 4.4 1.9 3.6
Financial Liabilities: Unhedged bank overdraft and on-call cash facilities 6 - - - - Loan from subsidiary 20 - - (42.9) (38.8) Total financial liabilities - - (42.9) (38.8)
Net exposure 2.3 4.4 (41.0) (35.2)
The group’s policy is to manage its finance costs using a mix of fixed and variable rate debt. The group’s policy is to maintain between 40% and 90% of its expected borrowings over the next twelve months at fixed rates which are carried at amortised cost and it is acknowledged that fair value exposure is a by-product of the group’s policy to manage its cash flow volatility arising from interest rate changes. At 30 June 2012 the Group had contracted 65% of expected borrowings over the next twelve months at fixed rates (2011: 87%).
To manage this mix in a cost-efficient manner, the group enters into interest rate swaps and caps, in which the group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 30 June 2012, the group had $199 million (2011: $118 million) of interest rate swaps and $65 million (2011: $85 million) of interest rate caps which were used to hedge current and future debt. The fair value in the group of the interest rate swaps was ($6.9 million) (2011: ($2.4 million)) and the fair value of interest rate caps was $0.3 million (2011: $0.7 million).
The group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates.
Sensitivity analysis At 30 June, it is estimated that if interest rates had increased by 100 basis points, with all other variables held constant, the effect of interest rate financial instruments held by the group and parent on profit before tax would have been $Nil (2011: $Nil) and equity would have increased by $5.2 million (2011: increase $4.4 million) due to the impact of fair value accounting of hedged interest rate derivatives.
Foreign currency risk The group’s exposure to foreign currency risk relates to the group’s export receipts and import and certain other payments which are primarily denominated in US dollars.
During the year ended 30 June 2011, Solid Energy’s changed its foreign currency policy to align with the quarterly pricing of its export sales contracts which came in to effect on 1 April 2010. The policy now requires cover of between 70 and 100% of its 0-3 months foreign currency firm commitments.
At 30 June 2012, the group had hedged 96% of its 0-3 months foreign currency firm commitments.
At 30 June 2011, the group had hedged 63% of its 0-3 months and 29% of its 3-6 months foreign currency firm commitments. This was slightly outside of the policy due to uncertainties at 30 June 2011 about USD revenues for the next 0-3 months due to earthquake damage at Lyttelton Port from the June 13 aftershocks.
Sensitivity analysis At 30 June, had the New Zealand Dollar strengthened 10% against the USD, with all other variables in particular interest rates remaining constant, the effect of financial instruments held by the group and parent on profit before tax would have been $Nil (2011: $Nil) and equity would have increased by $7.1 million (2011: increase $14.6 million). A 10% weakening of the NZD against the USD would increase profit by $Nil (2011: $nil) and equity would have decreased by $7.1 million (2011: decrease $17.0 million). These impacts are as a result of the fair value accounting of hedged foreign currency derivatives.
Management believe the exposures at balance date are representative of the risk exposure inherent in the financial instruments.
PG52 8. FINANCIAL RISK MANAGEMENT (continued)
Price Risk The group’s major price risk is in relation to export coal. Export coal prices can fluctuate significantly, ranging from US$129 per tonne to US$330 per tonne for export coking coal over the last two years. The group’s exposure to commodity price risk at balance date is minimal due to the fact that all export coal held in inventory has been sold at contracted rates. The terms of the sales contract are set quarterly.
Sensitivity analysis The group and parent do not currently use financial instruments to manage price risk and therefore there is no sensitivity to changes in price arising from financial instruments at year end (2011:$Nil).
Credit Risk Credit risk arises from the financial assets of the group, which comprise receivables, cash and short-term deposits and derivative financial instruments. The group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.
The group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the group’s policy to securitise its trade and other receivables. It is the group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the Board. These risk limits are regularly monitored. For export sales either a letter of credit or export insurance is used to manage credit risk. Receivable balances are monitored on an ongoing basis in accordance with Note 2 (T) Accounts Receivable, with the result that the group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the group and financial instruments are spread amongst a number of financial institutions to minimise the risk of default of counterparties.
Liquidity Risk The group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and on call cash facilities, bank loans, finance leases and committed available credit lines.
At 30 June 2012, the group had available approximately $515 million (2011: $415 million) of credit facilities available for its immediate use, of which $220 million (2011: $193 million) was unused. The facility at 30 June 2012 includes $Nil (2011: $Nil ) maturing within six months, $Nil (2011: $Nil) maturing within six to twelve months, $390 million (2011: $345 million) maturing within one to five years and $125 million (2011: $70 million) maturing after more than five years. In addition the group has a facility of $76 million (2011: $76 million) to satisfy its performance bonds and guarantees (see note 31). At balance date there was approximately $25 million (2011: $25 million) of unused facility.
The table overleaf reflects all contractually fixed payments and receivables for settlement, repayments and interest resulting from recognised financial assets and liabilities, including derivative financial instruments as of 30 June 2012. For derivative financial instruments the market value is presented, whereas for the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. Cash flows for financial assets and liabilities without fixed amount or timing are based on the conditions existing at 30 June 2012.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG53 8. FINANCIAL RISK MANAGEMENT (continued)
The contractual maturities of financial assets and liabilities, including interest payments and excluding the impact of netting agreements are:
Fair Value/ )6 months 6-12 months 1-5 years >5 years Total Carrying Value Year ended 30 June 2012 $M $M $M $M $M $M
Group financial assets Cash and cash equivalents 2.3 - - - 2.3 2.3 Trade and other receivables 87.9 - - - 87.9 87.9 (excluding prepayments) Held-to-maturity government stock - 0.5 - - 0.5 0.5 Total lease receivable 0.6 0.6 1.2 - 2.4 2.1 Foreign currency forward contracts Outflow (30.8) (0.9) - - (31.7) Inflow 32.0 1.0 - - 33.0 1.3 Foreign currency collar options Outflow (31.3) - - - (31.3) Inflow 31.9 - - - 31.9 0.6 Interest rate caps - core debt - - 0.2 0.1 0.3 0.3 Interest rate swaption - mobile plant - - 0.1 - 0.1 0.1 Total group financial assets 92.6 1.2 1.5 0.1 95.4 95.1
Group financial liabilities Accounts payable and accruals (114.6) (0.2) (1.8) (22.7) (139.3) (130.5) (excluding employee entitlements) Total lease liability (0.8) (0.8) (5.6) (18.1) (25.3) (11.4) Bonds and bank loans (6.4) (6.4) (279.4) (52.6) (344.8) (295.0) Foreign currency forward contracts Outflow (0.3) (1.5) - - (1.8) Inflow 0.3 1.5 - - 1.8 - Interest rate swaps Outflow (3.0) (3.2) (18.6) (2.7) (27.5) Inflow 2.1 2.3 13.9 2.2 20.5 (7.0) Total group financial liabilities (122.7) (8.3) (291.5) (93.9) (516.4) (443.9)
Net maturity (30.1) (7.1) (290.0) (93.8) (421.0) (348.8)
PG54 8. FINANCIAL RISK MANAGEMENT (continued)
Fair Value/ )6 months 6-12 months 1-5 years >5 years Total Carrying Value Year ended 30 June 2011 $M $M $M $M $M $M
Group financial assets Cash and cash equivalents 11.4 - - - 11.4 11.4 Trade and other receivables 131.9 - - - 131.9 131.9 (excluding prepayments) Held-to-maturity government stock - - 0.5 - 0.5 0.5 Total lease receivable 0.6 0.6 2.3 - 3.5 2.8 Foreign currency forward contracts Outflow (18.5) (7.4) - - (25.9) Inflow 22.5 10.1 - - 32.6 6.7 Foreign currency collar options Outflow (121.1) (15.4) (0.2) - (136.7) Inflow 139.6 22.6 0.2 - 162.4 25.7 Interest rate caps - core debt 0.1 0.1 0.3 0.2 0.7 0.7 Total group financial assets 166.5 10.6 3.1 0.2 180.4 179.7
Group financial liabilities Bank overdraft and on call cash facilities (2.0) - - - (2.0) (2.0) Accounts payable and accruals (103.9) - - - (103.9) (103.9) (excluding employee entitlements) Total lease liability (0.8) (0.8) (5.8) (19.4) (26.8) (11.9) Bonds and bank loans (5.8) (5.8) (178.9) (76.8) (267.3) (220.0) Foreign currency forward contracts Outflow (6.3) - - - (6.3) Inflow 5.8 - - - 5.8 (0.5) Interest rate swaps Outflow (2.8) (2.8) (14.6) (1.5) (21.7) Inflow 2.2 2.2 13.4 1.5 19.3 (2.4) Total group financial liabilities (113.6) (7.2) (185.9) (96.2) (402.9) (340.7)
Net maturity 52.9 3.4 (182.8) (96.0) (222.5) (161.0)
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG55 8. FINANCIAL RISK MANAGEMENT (continued)
Fair Value/ )6 months 6-12 months 1-5 years >5 years Total Carrying Value Year ended 30 June 2012 $M $M $M $M $M $M
Parent financial assets Cash and cash equivalents 1.9 - - - 1.9 1.9 Trade and other receivables 91.1 - - - 91.1 91.1 (excluding prepayments) Loans to subsidiaries 148.0 - - - 148.0 148.0 Total lease receivable 0.6 0.6 1.2 - 2.4 2.1 Foreign currency forward contracts Outflow (30.4) - - - (30.4) Inflow 31.6 - - - 31.6 1.2 Foreign currency collar options Outflow (31.3) - - - (31.3) Inflow 31.9 - - - 31.9 0.6 Interest rate caps - core debt - - 0.2 0.1 0.3 0.3 Interest rate swaption - mobile plant - - 0.1 - 0.1 0.1 Total parent financial assets 243.4 0.6 1.5 0.1 245.6 245.3
Parent financial liabilities Accounts payable and accruals (excluding (106.1) - - - (106.1) (106.1) employee entitlements) Total lease liability (0.8) (0.8) (5.8) (17.9) (25.3) (11.4) Bonds and bank loans (6.4) (6.4) (279.4) (52.6) (344.8) (295.0) Loans from subsidiaries (43.8) - - - (43.8) (42.9) Foreign currency forward contracts Outflow (0.3) (1.5) - - (1.8) Inflow 0.2 1.5 - - 1.7 (0.1) Interest rate swaps Outflow (2.8) (3.0) (17.3) (2.6) (25.7) Inflow 2.0 2.1 12.9 2.1 19.1 (6.6) Total parent financial liabilities (158.0) (8.1) (289.6) (71.0) (526.7) (462.1)
Net maturity 85.4 (7.5) (288.1) (70.9) (281.1) (216.8)
PG56 8. FINANCIAL RISK MANAGEMENT (continued)
Fair Value/ )6 months 6-12 months 1-5 years >5 years Total Carrying Value Year ended 30 June 2011 $M $M $M $M $M $M
Parent financial assets Cash and cash equivalents 3.6 - - - 3.6 3.6 Trade and other receivables 133.0 - - - 133.0 133.0 (excluding prepayments) Loans to subsidiaries 138.6 - - - 138.6 138.6 Total lease receivable 0.6 0.6 2.3 - 3.5 2.8 Foreign currency forward contracts Outflow (17.6) (7.4) - - (25.0) Inflow 21.6 10.1 - - 31.7 6.7 Foreign currency collar options Outflow (117.4) (12.5) - - (129.9) Inflow 135.7 19.6 - - 155.3 25.4 Interest rate caps - core debt 0.1 0.1 0.3 0.2 0.7 0.7 Total parent financial assets 298.2 10.5 2.6 0.2 311.5 310.8
Parent financial liabilities Bank overdraft and on call cash facilities (2.0) - - - (2.0) (2.0) Accounts payable and accruals (99.5) - - - (99.5) (99.5) (excluding employee entitlements) Total lease liability (0.8) (0.8) (5.8) (19.4) (26.8) (11.9) Bonds and bank loans (5.8) (5.8) (178.9) (76.8) (267.3) (220.0) Loans from subsidiaries (39.6) - - - (39.6) (38.8) Foreign currency forward contracts Outflow (3.5) - - - (3.5) Inflow 3.1 - - - 3.1 (0.4) Interest rate swaps Outflow (2.8) (2.8) (14.6) (1.5) (21.7) Inflow 2.2 2.2 13.5 1.4 19.3 (2.4) Total parent financial liabilities (148.7) (7.2) (185.8) (96.3) (438.0) (375.0)
Net maturity 149.5 3.3 (183.2) (96.1) (126.5) (64.2)
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG57 9. DERIVATIVES
Derivative financial instruments are used by the group in the normal course of business in order to hedge exposure to fluctuations in interest and foreign exchange rates.
Foreign currency cash flow hedges In order to protect against exchange rate movements, the group has entered into forward exchange contracts and collar options for USD. These contracts are hedging a portion of export receipts and are timed to mature in line with sales receipts.
The foreign currency contracts are considered to be highly effective hedges as they are matched against firm commitments and any gain or loss on the contracts attributable to the hedged risk is taken directly to equity. When the hedged firm commitment is realised, for example when the hedged sale actually occurs, the gains or losses that were previously recognised in equity are transferred to profit or loss.
Core debt interest rate cash flow hedges In order to protect against interest rate movements in the groups core debt, the group has entered into interest rate swaps and interest rate caps. These contracts are hedging a portion of interest payments and the timing of payments and receipts is matched to the interest payments on the underlying borrowings.
These contracts are considered to be highly effective hedges as they are matched to current and future borrowing commitments and any gain or loss on the contracts attributable to the hedged risk is taken directly to equity. When the hedged firm commitment is realised, for example when the hedged interest payment actually occurs, the gains or losses that were previously recognised in equity are transferred to profit or loss.
Mobile plant interest rate cash flow hedges At 30 June 2012 the group was exposed to interest rate risk on approximately $8 million (2011: $Nil) of mobile plant leases for which the element of the price relating to interest rates had not been set. The group entered into interest rate swaptions to hedge this risk.
Fair value of derivatives The fair value of cash flow hedges at reporting date was as follows:
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M
Foreign currency forward contracts 1.3 5.9 1.1 6.7 Foreign currency collar options 0.6 26.0 0.6 25.0 Interest rate swaptions - mobile plant 0.1 - 0.1 - Interest rate caps - core debt 0.3 0.7 0.3 0.7 Interest rate swaps - core debt (7.0) (2.4) (6.6) (2.4) (4.7) 30.2 (4.5) 30.0
Comprising: Current assets 1.9 32.5 1.8 32.2 Non-current assets 0.4 0.6 0.4 0.6 Current liabilities (1.8) (1.7) (1.8) (1.6) Non-current liabilities (5.2) (1.2) (4.9) (1.2) (4.7) 30.2 (4.5) 30.0
Changes in fair value of derivatives recognised in profit and loss Any cash flow hedge ineffectiveness is recognised immediately in profit or loss. Due to the volatility in coal prices and the timing of customer sales contracts during the prior year, certain forward exchange contracts hedging forecast revenue were de-designated from cash flow hedge relationships. The cumulative gains or losses previously recognised in the cash flow hedge reserve were immediately transferred to profit or loss.
Changes in the fair value of derivatives recognised as a loss in profit and loss for the group and parent during the year totalled $1.1 million and $1.3 million respectively (2011: $0.2 million and $0.3 million respectively).
At 30 June 2012 all underlying forecast transactions and related hedges remain highly probable to occur as originally forecast. Foreign currency cash flow hedges related to inventory items have been recognised in profit or loss.
PG58 9. DERIVATIVES (continued)
Nominal value of derivatives The nominal value of derivatives at reporting date was as follows:
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M
Assets Nominal value of qualifying cash flow hedges Foreign currency forward contracts 32.8 32.6 31.6 31.6 Foreign currency collar options 31.9 162.4 32.0 155.3 Interest rate caps - core debt 65.0 85.0 65.0 85.0 Interest rate swaptions - mobile plant 8.1 - 8.1 - 137.8 280.0 136.7 271.9
Liabilities Nominal value of qualifying cash flow hedges Foreign currency forward contracts 1.8 6.2 1.8 3.5 Interest rate swap contracts 190.5 153.0 168.0 153.0 192.3 159.2 169.8 156.5
Exchange rate at year end (USD) 0.8015 0.8283 0.8015 0.8283
10. INVENTORIES
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M
Coal stock - work in progress 34.2 35.6 34.2 35.6 Coal stock - finished goods 36.2 45.2 33.1 44.6 Materials and stores 23.5 27.3 20.7 19.1 Harvested crops - 2.9 - - 93.9 111.0 88.0 99.3
During the year, the group wrote down Nature’s Flames raw material stocks by $4.3 million (refer note 4 (G) (iii)). In addition, the group and parent wrote down the value of stores by $4.5 million (2011: $0.3 million) reflecting slow moving and obsolete stores.
11. LEASE RECEIVABLE
Finance lease commitments – group as a lessor The group has a finance lease receivable of $2.4 million (2011: $3.5 million) with a carrying amount of $2.1 million (2011: $2.8 million) for both the group and the parent. The lease contract expires within 3 years. The lease has no terms of renewal, purchase options or escalation clauses.
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
Up to 1 year 1.2 1.2 1.2 1.2 1 to 5 years 1.2 2.3 1.2 2.3 Total minimum lease payments 2.4 3.5 2.4 3.5 Less amounts representing finance lease charges (0.3) (0.7) (0.3) (0.7) Present value of minimum lease payments 2.1 2.8 2.1 2.8
Comprising: Current 7 1.0 0.8 1.0 0.8 Non-current 1.1 2.0 1.1 2.0 2.1 2.8 2.1 2.8
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG59 12. BIOLOGICAL ASSETS
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M The group has two types of biological assets, forestry and crop assets: Forestry assets (A) 0.5 0.2 0.2 - Crop assets (B) - 0.7 - - 0.5 0.9 0.2 -
(A) Forestry assets The group owns forestry assets as a result of its mining activities.
At 30 June 2012 the group held forestry assets on approximately 253.9 hectares of land and the parent held forestry assets on approximately 151.8 hectares of land.
(B) Crop assets During the year ended 30 June 2012 the group has planted approximately 285 hectares (2011: 1,191) of oil seed canola and cereal crops in relation to the biodiesel business. The oil seed canola is being grown in rotation with the cereal crops, in order to produce raw product for the group’s biodiesel business.
13. INVESTMENT PROPERTY
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M
Reconciliation of carrying amounts Opening balance as at 1 July 5.7 5.7 5.7 5.7 Disposal (1.2) - (1.2) - Net (loss) from fair value adjustments (0.8) - (0.8) - Closing balance as at 30 June 3.7 5.7 3.7 5.7
Investment properties are carried at fair value.
14. OTHER INVESTMENTS
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M Available-for-sale investments (A) 4.3 4.3 0.9 0.9 Held-to-maturity government stock (B) 0.5 0.5 - - Investments in controlled entities - at cost 28 - - 36.0 68.9 4.8 4.8 36.9 69.8
(A) Available-for-sale investments Available-for-sale investments consist of investments in Fonterra ordinary shares, and therefore have no fixed maturity date or coupon rate. The fair value of the Fonterra shares has been determined directly by reference to Fonterra’s published share fair value which is set around the beginning of June of each year.
(B) Government stock Government stock is held by the group’s self insurance company as a requirement of the Insurance Companies Deposits Act 1953. This Act was repealed on 7 March 2012. Restrictions existed under the Act on the group’s ability to deal in this stock. This stock continues to be held pending the issuance of a full licence under the Insurance (Prudential Supervision) Act 2010. The government stock has a maturity date of 15th April 2013 and a coupon interest rate of 6.5%.
PG60 15. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES
GROUP 2012 2011 $M $M
(A) Movements in the carrying value of the group’s jointly-controlled entity investments Opening balance as at 1 July 2.6 9.1 Disposal on acquisition of control (3.3) - Share of (losses) after tax - (6.5) Closing balance as at 30 June (0.7) 2.6
Comprising: Non-current assets - 2.6 Non-current liabilities (0.7) -
(B) Summarised financial information Extract from statement of financial position of jointly-controlled entities: Current assets 4.9 27.7 Non-current assets - 101.0 Total assets 4.9 128.7 Current liabilities (6.4) (69.3) Non-current liabilities - (33.2) Total liabilities (6.4) (102.5)
Net (liabilities)/assets (1.5) 26.2
Share of net (liabilities)/assets of jointly-controlled entities (0.7) 13.4
Extract from statement of financial performance of jointly-controlled entities: Revenue 54.7 60.6 (Loss) - (12.7)
Share of (loss) of jointly-controlled entities - (6.5)
On 2 February 2012 Solid Energy announced that it had acquired 49% of the shares in Spring Creek Mining Company via its subsidiary Spring Creek Mine Holdings Limited (SCMHL) from Cargill International SA. Prior to 2 February 2012 SCMHL owned 51% of shares in the company. From this date, Spring Creek Mining Company ceased to be a jointly-controlled entity (refer note 26).
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG61 16. PROPERTY, PLANT AND EQUIPMENT
Reconciliation of net carrying amounts
GROUP Land, Leased Buildings & Leasehold Plant & Infrastructure Capital Work Total Structures Improvements Equipment Asset in Progress Year ended 30 June 2012 $M $M $M $M $M $M At 1 July 2011 net of accumulated 154.1 3.4 213.8 12.5 49.3 433.1 depreciation and impairment Additions - externally acquired - - - - 89.3 89.3 Additions - business combinations 4.8 - 21.3 - 15.9 42.0 Transfers from capital work in progress 6.6 0.1 72.9 - (79.6) - Disposals (1.4) - (4.2) - - (5.6) Impairment - - (86.1) - - (86.1) Reclassified as held for sale (6.8) - (1.6) - (0.3) (8.7) Depreciation charge for the year (3.1) (0.9) (46.7) (0.4) - (51.1) At 30 June 2012 net of accumulated depreciation and impairment 154.2 2.6 169.4 12.1 74.6 412.9
At 30 June 2012 Cost 180.8 7.0 486.2 15.1 74.6 763.7 Accumulated depreciation and impairment (26.6) (4.4) (316.8) (3.0) - (350.8) Net carrying amount 154.2 2.6 169.4 12.1 74.6 412.9
Year ended 30 June 2011 At 1 July 2010 net of accumulated 141.2 0.2 192.8 13.0 47.1 394.3 depreciation and impairment Additions - externally acquired - - - - 77.9 77.9 Transfers from capital work in progress 15.4 4.2 56.1 - (75.7) - Disposals - - (0.5) - - (0.5) Depreciation charge for the year (2.5) (1.0) (34.6) (0.5) - (38.6) At 30 June 2011 net of accumulated depreciation and impairment 154.1 3.4 213.8 12.5 49.3 433.1
At 30 June 2011 Cost 178.4 7.0 387.8 15.1 49.3 637.6 Accumulated depreciation and impairment (24.3) (3.6) (174.0) (2.6) - (204.5) Net carrying amount 154.1 3.4 213.8 12.5 49.3 433.1
During the year, the group impaired property, plant and equipment by $86.1 million (2011: $Nil) (refer note 4 (G) (iii) - (vii)).
PG62 16. PROPERTY, PLANT AND EQUIPMENT (continued)
PARENT Land, Leased Buildings & Leasehold Plant Infrastructure Capital Work Total Structures Improvements & Equipment Asset in Progress Year ended 30 June 2012 $M $M $M $M $M $M
At 1 July 2011 net of accumulated 293.1 depreciation and impairment 55.0 3.4 175.1 12.5 47.1 Additions - externally acquired - - - - 78.7 78.7 Transfers from capital work in progress 4.2 - 55.8 - (60.0) - Disposals (0.4) - (3.6) - - (4.0) Impairment - - (23.2) - - (23.2) Depreciation charge for the year (1.7) (0.9) (37.1) (0.4) - (40.1) At 30 June 2012 net of accumulated depreciation and impairment 57.1 2.5 167.0 12.1 65.8 304.5
At 30 June 2012 Cost 80.3 7.0 378.7 15.1 65.8 546.9 Accumulated depreciation and impairment (23.2) (4.5) (211.7) (3.0) - (242.4) Net carrying amount 57.1 2.5 167.0 12.1 65.8 304.5
Year ended 30 June 2011
At 1 July 2010 net of accumulated 252.5 depreciation and impairment 41.1 0.2 150.9 13.0 47.3 Additions - externally acquired - - - - 73.6 73.6 Transfers from capital work in progress 15.6 4.2 54.0 - (73.8) - Disposals - - (0.2) - - (0.2) Depreciation charge for the year (1.7) (1.0) (29.6) (0.5) - (32.8) At 30 June 2011 net of accumulated depreciation and impairment 55.0 3.4 175.1 12.5 47.1 293.1
At 30 June 2011 Cost 76.5 7.0 337.0 15.1 47.1 482.7 Accumulated depreciation and impairment (21.5) (3.6) (161.9) (2.6) - (189.6) Net carrying amount 55.0 3.4 175.1 12.5 47.1 293.1
During the year, the parent impaired property, plant and equipment by $23.2 million (2011: $Nil) (refer note 4 (G) (v) & (vii)).
The agreement by which Solid Energy purchased the business from the Crown recognises potential land claims that may be lodged under the Treaty of Waitangi Act 1975. The effect on the valuation of assets resulting from potential claims can not be quantified. However, under the Treaty of Waitangi (State Enterprises) Act 1988, the Crown will compensate Solid Energy for any loss that occurs upon the resumption of any interest in land by the Crown.
17. MINING ASSETS
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M
Reconciliation of net carrying amounts Tangible mining assets (A) 263.3 179.0 223.9 179.0 Intangible mining assets (B) 18.2 37.5 13.1 37.2 Total mining assets 281.5 216.5 237.0 216.2
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG63 17. MINING ASSETS (continued)
(A) Tangible mining assets GROUP Exploration and Mines in Mines in Evaluation Development Production Total Year ended 30 June 2012 $M $M $M $M At 1 July 2011 net of accumulated amortisation and impairment 29.0 24.1 125.9 179.0 Additions - internal development 27.3 34.5 33.3 95.1 Additions - business combinations - 6.2 34.0 40.2 Transfers from intangible mining assets - 13.5 - 13.5 Transfers (26.9) (18.0) 44.9 - Impairment - (9.7) (38.5) (48.2) Amortisation charge for the year - - (16.3) (16.3) At 30 June 2012 net of accumulated depreciation and impairment 29.4 50.6 183.3 263.3
At 30 June 2012 Cost 29.4 60.3 427.4 517.1 Accumulated amortisation and impairment - (9.7) (244.1) (253.8) Net carrying amount 29.4 50.6 183.3 263.3
Year ended 30 June 2011 At 1 July 2010 net of accumulated depreciation and impairment 31.9 14.6 102.7 149.2 Additions - internal development 16.9 18.3 8.9 44.1 Transfers (19.8) (8.8) 28.6 - Amortisation charge for the year - - (14.3) (14.3) At 30 June 2011 net of accumulated depreciation and impairment 29.0 24.1 125.9 179.0
At 30 June 2011 Cost 29.0 24.1 294.4 347.5 Accumulated amortisation and impairment - - (168.5) (168.5) Net carrying amount 29.0 24.1 125.9 179.0
PARENT Exploration and Mines in Mines in Evaluation Development Production Total Year ended 30 June 2012 $M $M $M $M At 1 July 2011 net of accumulated amortisation and impairment 29.0 24.1 125.9 179.0 Additions - internal development 27.3 33.0 4.0 64.3 Transfers from intangible mining assets - 13.5 - 13.5 Transfers (26.9) (18.0) 44.9 - Impairment - (6.3) (10.9) (17.2) Amortisation charge for the year - - (15.7) (15.7) At 30 June 2012 net of accumulated depreciation and impairment 29.4 46.3 148.2 223.9
At 30 June 2012 Cost 29.4 52.6 337.2 419.2 Accumulated amortisation and impairment - (6.3) (189.0) (195.3) Net carrying amount 29.4 46.3 148.2 223.9
Year ended 30 June 2011 At 1 July 2010 net of accumulated depreciation and impairment 31.9 14.6 102.7 149.2 Additions - internal development 16.9 18.3 8.9 44.1 Transfers (19.8) (8.8) 28.6 - Amortisation charge for the year - - (14.3) (14.3) At 30 June 2011 net of accumulated depreciation and impairment 29.0 24.1 125.9 179.0
At 30 June 2011 Cost 29.0 24.1 294.4 347.5 Accumulated amortisation and impairment - - (168.5) (168.5) Net carrying amount 29.0 24.1 125.9 179.0
PG64 17. MINING ASSETS (continued)
(B) Intangible mining assets GROUP Exploration and Mines in Mines in Evaluation Development Production Total Year ended 30 June 2012 $M $M $M $M At 1 July 2011 net of accumulated amortisation and impairment 8.4 21.1 8.0 37.5 Additions - intangibles 1.1 0.7 - 1.8 Additions - business combinations - - 8.9 8.9 Transfers to tangible mining assets - (13.5) - (13.5) Transfers - intangibles (3.7) 3.7 - - Impairment - intangibles - (12.0) (3.9) (15.9) Amortisation charge for the year on intangibles - - (0.6) (0.6) At 30 June 2012 net of accumulated depreciation and impairment 5.8 - 12.4 18.2
At 30 June 2012 Cost 7.9 12.0 27.2 47.1 Accumulated amortisation and impairment (2.1) (12.0) (14.8) (28.9) Net carrying amount 5.8 - 12.4 18.2
Year ended 30 June 2011 At 1 July 2010 net of accumulated depreciation and impairment 18.3 - 1.2 19.5 Additions - intangibles 0.5 12.8 0.9 14.2 Transfers - intangibles (8.3) 8.3 - - (Impairment)/impairment reversal - intangibles (2.1) - 6.0 3.9 Amortisation charge for the year on intangibles - - (0.1) (0.1) At 30 June 2011 net of accumulated depreciation and impairment 8.4 21.1 8.0 37.5
At 30 June 2011 Cost 10.5 21.1 15.6 47.2 Accumulated amortisation and impairment (2.1) - (7.6) (9.7) Net carrying amount 8.4 21.1 8.0 37.5
PARENT Exploration and Mines in Mines in Evaluation Development Production Total Year ended 30 June 2012 $M $M $M $M At 1 July 2011 net of accumulated amortisation and impairment 8.4 21.1 7.7 37.2 Additions - intangibles 1.1 0.7 - 1.8 Transfers to tangible mining assets - (13.5) - (13.5) Transfers - intangibles (3.7) 3.7 - - Impairment - intangibles - (12.0) - (12.0) Amortisation charge for the year on intangibles - - (0.4) (0.4) At 30 June 2012 net of accumulated depreciation and impairment 5.8 - 7.3 13.1
At 30 June 2012 Cost 7.9 12.0 15.0 34.9 Accumulated amortisation and impairment (2.1) (12.0) (7.7) (21.8) Net carrying amount 5.8 - 7.3 13.1
Year ended 30 June 2011 At 1 July 2010 net of accumulated depreciation and impairment 18.3 - 0.9 19.2 Additions - intangibles 0.5 12.8 0.8 14.1 Transfers - intangibles (8.3) 8.3 - - (Impairment)/Impairment reversal - intangibles (2.1) - 6.0 3.9 Amortisation charge for the year on intangibles - - - - At 30 June 2011 net of accumulated depreciation and impairment 8.4 21.1 7.7 37.2
At 30 June 2011 Cost 10.5 21.1 15.0 46.6 Accumulated amortisation and impairment (2.1) - (7.3) (9.4) Net carrying amount 8.4 21.1 7.7 37.2
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG65 18. INTANGIBLE ASSETS
(A) Reconciliation of net carrying amounts GROUP Intellectual Goodwill Property ETS Units Total Year ended 30 June 2012 $M $M $M $M At 1 July 2011 net of accumulated amortisation and impairment 1.6 0.1 0.7 2.4 Additions - - 4.2 4.2 Remittance of ETS units to settle ETS obligations - - (3.8) (3.8) Impairment (1.6) - - (1.6) Amortisation charge for the year - (0.1) - (0.1) At 30 June 2012 net of accumulated depreciation and impairment - - 1.1 1.1
At 30 June 2012 Cost 1.9 0.5 1.1 3.5 Accumulated amortisation and impairment (1.9) (0.5) - (2.4) Net carrying amount - - 1.1 1.1
Year ended 30 June 2011 At 1 July 2010 net of accumulated depreciation and impairment 1.6 0.2 - 1.8 Additions - - 2.3 2.3 Remittance of ETS units to settle ETS obligations - - (1.6) (1.6) Amortisation charge for the year - (0.1) - (0.1) At 30 June 2011 net of accumulated depreciation and impairment 1.6 0.1 0.7 2.4
At 30 June 2011 Cost 1.9 0.5 0.7 3.1 Accumulated amortisation and impairment (0.3) (0.4) - (0.7) Net carrying amount 1.6 0.1 0.7 2.4
PARENT Intellectual Goodwill Property ETS Units Total Year ended 30 June 2012 $M $M $M $M At 1 July 2011 net of accumulated amortisation and impairment 1.6 - 0.7 2.3 Additions - - 3.0 3.0 Remittance of ETS units to settle ETS obligations - - (2.6) (2.6) Impairment (1.6) - - (1.6) At 30 June 2012 net of accumulated depreciation and impairment - - 1.1 1.1
At 30 June 2012 Cost 1.6 - 1.1 2.7 Accumulated amortisation and impairment (1.6) - - (1.6) Net carrying amount - - 1.1 1.1
Year ended 30 June 2011 At 1 July 2010 net of accumulated depreciation and impairment 1.6 - - 1.6 Additions - - 2.3 2.3 Remittance of ETS units to settle ETS obligations - - (1.6) (1.6) At 30 June 2011 net of accumulated depreciation and impairment 1.6 - 0.7 2.3
At 30 June 2011 Cost 1.6 - 0.7 2.3 Accumulated amortisation and impairment - - - - Net carrying amount 1.6 - 0.7 2.3
PG66 18. INTANGIBLE ASSETS (continued)
(B) Description of the group’s intangible assets
Goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. The opening goodwill balance relates to the Switch business unit. This business has a consistent history of losses. With no material change in the business profitability forecast $1.6 million of goodwill was impaired during the year.
Intellectual property Comprises payments made to acquire intellectual property. It is amortised over its expected useful life.
Emission Trading Scheme (ETS) units ETS units are purchased to satisfy the group’s ETS obligations.
19. ACCOUNTS PAYABLE AND ACCRUALS
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M Trade accounts payable and accruals 125.7 101.1 101.3 96.8 Payables to jointly-controlled entities 4.8 2.8 4.8 2.7 Employee entitlements 25.3 21.0 25.2 21.0 Lease liability (current portion) 22 0.5 0.5 0.5 0.5 Total accounts payable and accruals 156.3 125.4 131.8 121.0 Comprising: Current 140.6 125.4 131.8 121.0 Non-current 15.7 - - - 156.3 125.4 131.8 121.0
(A) Fair value The carrying value of current payables is assumed to approximate fair value. Non-current payables are stated at fair value which is calculated based on estimated discounted cash flows.
(B) Related party payables For terms and conditions of related party payables refer to note 28.
(C) Interest rate risk, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 8.
20. INTEREST-BEARING BORROWINGS
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M Loans from subsidiaries - - 42.9 38.8 Bonds 70.0 70.0 70.0 70.0 Bank loans 225.0 150.0 225.0 150.0 295.0 220.0 337.9 258.8 Comprising: Current - - 42.9 38.8 Non-current 295.0 220.0 295.0 220.0 295.0 220.0 337.9 258.8
(A) Interest rate risk, foreign exchange and liquidity risk The interest rate applicable to loans from subsidiaries at 30 June 2012 was 4.0% (2011: 4.0%) and is repayable on demand. Further information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 8.
(B) Assets pledged as security All bond and loan facilities are unsecured.
(C) Defaults and breaches The terms of the bonds and loans require Solid Energy to meet a number of financial and non-financial covenants on an ongoing basis.
During the current and prior years, there were no defaults on borrowings or breaches of any covenants.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG67 21. PROVISIONS
(A) Movements in provisions GROUP Mobile plant Rehabilitation provision provision Other Total $M $M $M $M Opening balance as at 1 July 2011 17.4 215.8 2.4 235.6 Additions - business combinations - 1.1 - 1.1 Arising during the year 38.3 9.2 9.5 57.0 Amounts incurred and charged (27.6) (13.3) (2.5) (43.4) Unused amounts reversed - (2.4) - (2.4) Effect of change in discount rate and inflation estimates - 14.9 - 14.9 Effect of discount rate unwind - 4.9 - 4.9 Closing balance as at 30 June 2012 28.1 230.2 9.4 267.7 Comprising: Current 27.2 42.2 1.6 71.0 Non-current 0.9 188.0 7.8 196.7 As at 30 June 2012 28.1 230.2 9.4 267.7
Opening balance as at 1 July 2010 2.1 198.8 5.0 205.9 Arising during the year 26.5 25.0 - 51.5 Amounts incurred and charged (11.2) (11.5) (2.6) (25.3) Unused amounts reversed - (5.8) - (5.8) Effect of change in discount rate and inflation estimates - 3.9 - 3.9 Effect of discount rate unwind - 5.4 - 5.4 Closing balance as at 30 June 2011 17.4 215.8 2.4 235.6 Comprising: Current 16.9 48.9 2.4 68.2 Non-current 0.5 166.9 - 167.4 As at 30 June 2011 17.4 215.8 2.4 235.6
PARENT Mobile plant Rehabilitation provision provision Total $M $M $M Opening balance as at 1 July 2011 17.4 215.8 233.2 Arising during the year 38.3 9.2 47.5 Amounts incurred and charged (27.6) (13.3) (40.9) Unused amounts reversed - (2.4) (2.4) Effect of change in discount rate and inflation estimates - 14.9 14.9 Effect of discount rate unwind - 4.9 4.9 Closing balance as at 30 June 2012 28.1 229.1 257.2 Comprising: Current 27.2 42.2 69.4 Non-current 0.9 186.9 187.8 As at 30 June 2012 28.1 229.1 257.2
Opening balance as at 1 July 2010 2.1 198.8 200.9 Arising during the year 26.5 25.0 51.5 Amounts incurred and charged (11.2) (11.5) (22.7) Unused amounts reversed - (5.8) (5.8) Effect of change in discount rate and inflation estimates - 3.9 3.9 Effect of discount rate unwind - 5.4 5.4 Closing balance as at 30 June 2011 17.4 215.8 233.2 Comprising: Current 16.9 48.9 65.8 Non-current 0.5 166.9 167.4 As at 30 June 2011 17.4 215.8 233.2
PG68 21. PROVISIONS (continued)
(B) Nature and timing of provisions
Mobile plant provision The group provides for costs relating to the mobilisation and demobilisation of mobile plant fleet to and from mine sites and for costs associated with the usage of components and tyres on leased plant.
Rehabilitation provision The group is required, by various legislation controlling its mining activities, to rehabilitate to an agreed condition, the land on which its mining activities OCCUR 4HE lNAL COST OF REHABILITATION CANNOT BE ESTABLISHED WITH CERTAINTY )N ACCORDANCE WITH NOTE 6 0ROVISIONS INCREASES IN THE PROVISION FOR rehabilitation costs at operational mine sites were capitalised to mining assets and will be amortised to profit or loss over the remaining productive life of the operation on a unit of production basis. Any increases in provisions relating to closed sites are charged directly to profit or loss.
The discount rate estimate for rehabilitation costs uses a risk-free rate for discounting future rehabilitation costs. At 30 June 2012 the risk-free discount rate was re-assessed as being 4.62% (2011: 5.62%) nominal with inflation estimated at 1.99% (2011: 2.21%).
Due to the long-term nature of the rehabilitation requirements, the calculation of the provision includes the use of estimates, some of which are subject to significant uncertainty. The group continues to refine its estimates as more information and experience is gathered in relation to future costs, however there may be significant future variances from current estimates.
The company has an indemnity from the Crown for its share of end of mine life rehabilitation costs relating to mining activities prior to 1 April 1987.
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M Crown receivable 80.6 81.1 80.6 81.1 Comprising: Current 22.1 30.7 22.1 30.7 Non-current 58.5 50.4 58.5 50.4 80.6 81.1 80.6 81.1
22. LEASE LIABILITY
The group has a finance lease over the Cobden Bridge with a carrying amount of $11.4 million (2011: $11.9 million) for both the group and the parent. The lease contract expires in 24 years. The lease has no terms of renewal, purchase options or escalation clauses.
Finance lease commitments - group as a lessee
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M Up to 1 year 1.5 1.5 1.5 1.5 1 to 5 years 5.6 5.8 5.6 5.8 Over 5 years 18.2 19.5 18.2 19.5 Total minimum lease payments 25.3 26.8 25.3 26.8 Less amounts representing finance lease charges (13.9) (14.9) (13.9) (14.9) Present value of minimum lease payments 11.4 11.9 11.4 11.9 Comprising: Current 19 0.5 0.5 0.5 0.5 Non-current 10.9 11.4 10.9 11.4 11.4 11.9 11.4 11.9
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG69 23. EQUITY
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M 60,900,000 ordinary shares each fully paid 60.9 60.9 60.9 60.9
Fully paid ordinary shares carry one vote per share and carry equal right to dividends and surplus on winding up.
Capital management When managing capital, management’s objective is to maximise shareholder value by generating a sustained long-term return greater than the market cost of capital for businesses with a similar risk profile.
Management aim to achieve and maintain a capital structure consistent with the nature of its business and its objective is to maximise shareholder value, while maintaining a prudent level of financial risk. There have been no material changes in the group’s management of capital during the year.
Dividends for the year ended 30 June 2012 totalled $30.0 million (30 June 2011: $20.0 million).
The group has met all of the imposed capital requirements, required by its credit facility providers.
24. CASHFLOW HEDGE RESERVE
Nature and purpose of reserves
Cash flow hedge reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge, net of deferred tax.
GROUP PARENT see 2012 2011 2012 2011 notes $M $M $M $M Year ended 30 June 2012 Opening balance as at 1 July 22.4 13.5 22.4 13.5 Net (loss)/gain recognised on cashflow hedges (36.4) 11.9 (35.8) 11.8
Income tax benefit/(expense) related to gains and losses 5 (B) recognised in other comprehensive income 10.5 (3.0) 10.0 (2.9) Closing balance as at 30 June (3.5) 22.4 (3.4) 22.4
PG70 25. RECONCILIATION OF PROFIT AFTER TAXATION TO NET CASH FLOWS FROM OPERATING ACTIVITIES
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M (Loss)/profit after taxation (40.2) 87.2 (72.7) 90.1
Non-cash items Depreciation 51.1 38.6 40.1 32.8 Amortisation of mining assets 16.9 14.4 16.1 14.3 Amortisation of intangibles 0.1 0.1 - - Movement in fair value of investment property 0.8 - 0.8 - Impairment of other receivable - 2.5 - 2.5 Impairment/(impairment reversal) of property,plant and equipment and mining assets 150.1 (3.9) 52.3 (3.9) Impairment/(impairment reversal) of loan to subsidiary - - 72.3 (2.7) Impairment/(impairment reversal) of subsidiary investment - - 32.7 - Unrealised (gain)/loss on foreign exchange contracts (1.1) 0.2 (1.3) 0.3 Share of loss of jointly controlled entity - 6.5 - - Deferred taxation movement taken to profit or loss (27.4) 0.9 (13.7) 1.2 Discount unwind on term provision 4.6 4.2 4.5 4.2 Rehabilitation adjustments (28.1) (16.9) (20.2) (20.6) Reclassification of working capital items as held for sale (5.5) - - - Related party receivables transferred to loans to subsidiaries on acquisition of subsidiary (43.8) - (43.8) - Subvention payments - - 42.1 18.8 117.7 46.6 181.9 46.9
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M
Movements in working capital Accounts payables and accruals 15.2 24.3 10.8 32.0 Accounts receivable 42.7 18.1 37.7 3.8 Non-current prepayments 0.5 1.1 0.5 1.1 Inventories 17.1 (39.5) 11.3 (43.0) Stripping in advance (38.8) (20.9) (38.8) (20.9) Tax payable (1.3) (9.6) (1.5) (10.0) 35.4 (26.5) 20.0 (37.0)
Other statement of financial position movements Rehabiliation provision 14.4 15.4 13.3 10.5 Other provisions 17.7 4.7 10.7 16.1 Crown receivable 0.5 3.1 0.5 3.1 32.6 23.2 24.5 29.7
Items classified as investing/financing activities (Surplus) on sale of property, plant and equipment (1.7) - (0.9) (0.1) Interest costs capitalised (1.6) (1.6) (1.4) (1.5) (3.3) (1.6) (2.3) (1.6)
Net cash flows from operating activities 142.2 128.9 151.4 128.1
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG71 26. BUSINESS COMBINATIONS
Acquisitions
2012 On 2 February 2012 Solid Energy announced that it had acquired 49% of the shares in Spring Creek Mining Company via its subsidiary Spring Creek Mine Holdings Limited (SCMHL) from Cargill International SA. Prior to 2 February 2012 SCMHL owned 51% of shares in the company. The acquisition gives Solid Energy full ownership of the Spring Creek mine resource which complements our other West Coast mining operations.
Identifiable assets acquired and liabilities assumed on acquisition
$M Property, plant and equipment 42.0 Mining assets 49.1 Inventories 2.3 Trade receivables 6.3 Cash and cash equivalents 4.2 Loans and borrowings (39.9) Deferred tax assets 15.2 Derivative liabilities (0.1) Rehabilitation provision (1.1) Trade and other payables (51.2) Contract to supply at less than market price (26.8) Total identifiable net assets -
Total consideration -
Net cash outflow arising on acquisition Consideration paid in cash - Less: Cash and cash equivalents acquired (4.2) (4.2)
All trade receivables are expected to be collected in full and no fair value adjustment has been made.
As all production from Spring Creek Mining Company is sold to Solid Energy there would be no change to reported revenue of the combined group for the current reporting period if the acquisition date had been 1 July 2011. There would also be no change to the profit for the combined entity for the current reporting period if the acquisition date had been 1 July 2011.
The revenue reported for the group since 2 February 2012 contributed by Spring Creek Mining Company is $Nil. Spring Creek Mining Company contributed losses of $72.1 million to the group over the same period.
Assets classified as held for sale and discontinued operations On 30 June 2012 the Board of Directors confirmed it will no longer be investing in the Group’s Biodiesel operations. The Group is actively seeking a buyer for the Biodiesel business and expects to exit the business during the year ended 30 June 2013. As such the assets related to the Biodiesel operations have been reclassified as Held for Sale at 30 June 2012.
Prior to classifying as Held for Sale, the group impaired the assets of the business by $9.0 million. There were no other impairment losses recognised on reclassification as Held for Sale.
(A) Loss for the year from discontinued operations
GROUP 2012 2011 $M $M Revenue 12.6 14.6 Expenses (16.9) (20.0) Impairments (9.0) - Net (loss) before tax (13.3) (5.4) Attributable income tax benefit 6.0 8.2 Net (loss) / profit after tax (7.3) 2.8
PG72 26. BUSINESS COMBINATIONS (continued)
(B) Cash flows from discontinued operations
GROUP 2012 2011 $M $M Net cash flows from operating activities (4.0) (3.6) Net cash flows from investing activities (0.5) (1.1) Net cash flows from financing activities (intercompany funding) 4.5 4.7 Net cash flows from discontinued operations - -
2011 No significant acquisitions were made during the year ended 30 June 2011.
27. COMMITMENTS
(A) Leasing commitments Operating lease commitments - group as a lessee The group has entered into commercial leases on mobile plant, offices, office equipment and vehicles. These leases have terms between 1 and 8 years with a renewal option on the office lease. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M Up to 1 year 35.8 31.4 29.6 28.1 1 to 5 years 75.6 93.0 67.7 90.8 Over 5 years 25.2 21.7 24.3 21.0 Total minimum lease payments 136.6 146.1 121.6 139.9
Operating lease commitments - Group as a lessor The group has entered into residential and farm property leases on the properties it is holding for potential future coal development. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. Future minimum rentals receivable under non-cancellable operating leases as at 30 June are as follows:
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M Up to 1 year 2.0 2.0 1.0 1.1 1 to 5 years 3.3 3.5 1.1 1.1 Over 5 years 1.8 2.1 - - Total minimum lease payments 7.1 7.6 2.1 2.2
(B) Contractual commitments The Group has a number of operational contracts with various parties in relation to mine operations and the transportation of coal. At 30 June 2012 the Group is committed to spending a minimum of $102.3 million (2011: $137.1 million) over the following 12 months.
(C) Capital Commitments The Group’s contractual commitments to purchase property, plant, equipment and mining assets at 30 June 2012 are estimated to be $38.1 million (2011: $9.1 million).
After balance date announcements (refer note 33) are expected to reduce these commitments, although the quantum of the reduction is yet to be determined.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG73 28. RELATED PARTY TRANSACTIONS
(A) Ultimate parent Solid Energy is a limited liability company incorporated in New Zealand under the Companies Act 1993 and is wholly owned by the Government of New Zealand. The liabilities of Solid Energy and its subsidiaries are not in anyway guaranteed by the Government of New Zealand.
(B) Subsidiaries The consolidated financial statements include the financial statements of Solid Energy and the subsidiaries and jointly-controlled entities in the following table:
Country of % Equity Interest Investment ($M) Name incorporation 2012 2011 2012 2011 Subsidiaries: CoalCorp Insurance Services Limited New Zealand 100% 100% 11.5 11.5 Terrace Coal Mine Limited New Zealand 100% 100% - 0.2 Solid Energy Renewable Fuels Limited New Zealand 100% 100% 7.2 7.2 Biodiesel New Zealand Limited New Zealand 100% 100% 7.3 7.3 Coal Bed Methane Limited New Zealand 100% 100% - - Waikato Mining and Contracting Limited New Zealand 100% 100% - - Spring Creek Mine Holdings Limited* New Zealand 100% 100% - 32.7 Coal New Zealand Limited New Zealand 100% 100% - - Coal New Zealand International Limited New Zealand 100% 100% - - Solid Energy Land Holdings Limited New Zealand 100% 100% 10.0 10.0 Nature’s Flame Italia SRL** Italy 100% 100% - - Spring Creek Mining Company (Refer Note 26) New Zealand 100% 51% - - 36.0 68.9 Jointly-controlled entities: Stockton Alliance Limited New Zealand 50% 50% - -
* The parent investment in Spring Creek Mine Holdings Limited has been impaired by $32.7 million during the year (refer note 4 (G)(x)).
** On 1 April 2011, Solid Energy Renewable Fuels Limited established Nature’s Flame Italia SRL at a cost of $0.02 million. The investment is recorded at cost in the separate financial statements of Solid Energy Renewable Fuels Limited and therefore there is no cost recorded in the parent.
(C) Key management personnel Compensation for key management personnel:
GROUP PARENT 2012 2011 2012 2011 $M $M $M $M Short-term employee entitlements 4.8 4.5 4.8 4.5 Contributions to defined contribution plans 0.3 0.3 0.3 0.3 Total compensation 5.1 4.8 5.1 4.8
(D) Transactions with related parties Solid Energy undertakes transactions with other state owned enterprises and Government departments. These transactions are carried out on a commercial and arms-length basis and it is not considered that these fall within the intended scope of related parties disclosure.
Subsidiaries CoalCorp Insurance Services Limited, a 100% owned subsidiary, provides insurance services to Solid Energy, the value of these services during the year was $7.8 million (2011: $7.7 million). The company made claims totalling $0.2 million with CoalCorp Insurance Services Limited during the year (2011: $1.4 million).
The parent company, Solid Energy, provides and receives funding from its subsidiary companies. These loans are repayable on demand. Interest on these loans is subject to interest between 0% and 4% at 30 June 2012 (2011: between 0% and 4%). At 30 June 2012 the amount borrowed by the parent Solid Energy from subsidiary companies totalled $42.9 million (2011: $38.8 million) with interest accrued during the year of $1.5 million (2011: $1.3 million). At 30 June 2012 the total amount loaned to subsidiaries was $222.2 million (2011: $140.5 million) with interest received during the year of $Nil (2011: $Nil). Of the $222.2 million loaned to subsidiaries $74.2 million (2011: $1.9 million) has been provided for, see note 4 (G) (ix) for more information.
Stockton Alliance Limited Solid Energy has entered into a 50/50 joint venture agreement with Downer EDI Mining (NZ) Limited to provide staff to operate the Stockton Mine. The joint venture is known as Stockton Alliance Limited. During the year $45.0 million (2011: $44.5 million) was paid to employees of Stockton Alliance Limited and recharged to Solid Energy. At 30 June 2012 the net amount owing to Stockton Alliance Limited from Solid Energy is $4.8 million (2011: $2.8 million).
PG74 28. RELATED PARTY TRANSACTIONS (continued)
Spring Creek Mining Company Solid Energy operates the Spring Creek Mine on behalf of Spring Creek Mining Company (Spring Creek), a 100% owned subsidiary. Prior to 2 February 2012, Spring Creek was a 51% owned jointly-controlled entity with our partner Cargill International SA. Inter-company balances and transactions between Solid Energy and Spring Creek have been eliminated for Group from this date.
The costs recharged to Spring Creek during the year were $67.2 million, (2011: $65.0 million). Solid Energy purchases coal from Spring Creek for resale into the domestic and international markets. During the year the total value of these purchases was $58.8 million (2011: $53.0 million).
Production from the Spring Creek mine was halted from February 2012 to June 2012, while major mine development and safety initiatives were undertaken. The reduced cashflows resulted in a liquidity issue for Spring Creek and further additional funding is expected to be required in the coming year. Solid Energy has undertaken to support the business over the coming year to ensure it meets its obligations as they fall due.
As a consequence of the reduced cashflows the net amount owing to Solid Energy from Spring Creek at 30 June 2012 has increased to $96.2 million (2011: $44.2 million). Included in the amount owing at 30 June 2012 is a $3 million coal voucher asset receivable from Spring Creek (2011: $3 million) and interest due on overdue trade receivables of $Nil (2011: $1.1 million). An impairment of $41.6 million (2011: $Nil) was recognised against the amount owing to Solid Energy (refer note 4 (G) (ix).
At 30 June 2012, Spring Creek had no debt. At 30 June 2011 Solid Energy had guaranteed its 51% share of certain loans advanced to Spring Creek by its banker HSBC, with the guarantees given by Solid Energy totalling $12.7 million.
Terms and conditions of transactions with related parties Sales to and purchases from related parties are made in arm’s length transactions both at normal market prices and on normal commercial terms. With the exception of Spring Creek Mining Company, outstanding related party trade receivable and trade payable balances at year end are unsecured, interest free and settlement occurs in cash. Interest on overdue receivables from Spring Creek Mining Company has been charged at a rate of 9% (2011: 9%) .There are no guarantees which have been provided or received for any related party receivables or payables.
(E) Interests register For the purposes of Section 140 of the Companies Act 1993 and clause 26 of the company’s constitution the following Directors’ interests are disclosed. All transactions with parties in which directors and key management personnel have an interest are conducted on arms length commercial terms:
Current directors: Solid Energy and Air New Zealand Limited, of which JL Palmer is a Director, have entered into commercial agreements for long-haul travel and for travel agency services.
Solid Energy has in place a master agreement for consultancy services with CRL Energy Ltd of which AJ Broome is a Director.
Solid Energy runs an employee benefits scheme through Hardy and Hiscoke Staff Benefits Specialists with AMP New Zealand Retirement Trust. AMP Services New Zealand Ltd is the Administration Manager and AMP Superannuation New Zealand Ltd is the Trustee. JL Palmer is a Director of AMP Life Ltd and AMP Ltd.
Solid Energy uses Nepean Mining Limited (formerly M I Power Pty Ltd) of which AJ Broome is a Director, for the supply of electrical equipment.
Solid Energy uses the legal services of Chapman Tripp to which D Patterson provides consulting services.
Solid Energy acquires fuel equipment and facility security services from ECL Group Ltd, of which J Fletcher is a Director.
Key management personnel Solid Energy has entered into commercial arrangements in relation to banking products including term deposits, loans and loan facilities and derivatives with CBA. DM Elder was a Director of ASB Bank, which is a subsidiary of CBA. DM Elder resigned as a Director of ASB Bank on 31 December 2011.
3OLID %NERGY HAS ENTERED INTO AN AGREEMENT FOR THE SUPPLY OF CONSULTING SERVICES WITH 6ERA &ACIENDA 0TY ,TD OF WHICH ' $IACK WAS A $IRECTOR ' $IACK RESIGNED AS A $IRECTOR OF 6ERA &ACIENDA 0TY ,TD ON *ULY
Solid Energy has entered into commercial arrangements for the provision of port services with Lyttelton Port Company Ltd. Christchurch City Holdings Ltd, of which B Dwyer is a Director, is a majority shareholder of Lyttelton Port Company Ltd.
(F) Directors insurance The Group has arranged policies of Directors’ Liability insurance which, together with an indemnity given to the Directors, ensures that generally Directors will incur no monetary loss as a result of actions undertaken by them as Directors. Certain actions are specifically excluded, for example the incurring of penalties and fines which may be imposed in respect of breaches of the law.
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG75 29. DIVIDENDS
Dividends of 49.3 cents per share (2011: 32.8 cents), amounting in total to $30.0 million were paid during the year ended 30 June 2012 (2011: $20.0 million).
30. CONTINGENT LIABILITIES
There were no significant contingent liabilities at 30 June 2012.
At 30 June 2011 the group was in a dispute with a former mine subcontractor where a claim and counter claim had been made by the parties. This dispute was settled during the year ended 30 June 2012.
31. PERFORMANCE BONDS AND GUARANTEES
The group has performance bonds and guarantees outstanding at 30 June 2012 totalling $57.4 million (2011: $63.7 million) which may be drawn down in the event the group fails to perform under various contracts and licenses. It is not practical to estimate the fair value of performance bonds and guarantees with an acceptable level of reliability. No loss is expected in respect of these bonds.
32. CONSENTS
The company is required by the Resource Management Act 1991 to hold various consents, issued under that Act, before it can mine. The company has all the consents it requires for its current operations. Consents are issued for varying periods and are renewed upon expiry. The company anticipates all expiring consents to be renewed.
33. SIGNIFICANT AFTER REPORTING DATE TRANSACTIONS
(A) Group restructure Subsequent to balance date Solid Energy undertook a comprehensive review in response to extremely challenging market conditions across the business and difficult underground mine development conditions due to complex geology.
As a result of the review, Solid Energy announced changes to the structure, capability and size of the organisation.
Spring Creek mine is intended to be placed on care and maintenance to minimise cash expenditure while future options are evaluated. Work on the new Huntly East Mine ventilation shaft to support future expansion has been ceased and the focus of the mine will be on mining coal from developed reserves. The assets of both Spring Creek and Huntly East mines have been impaired as noted in note 4 (G) (vi) and (vii).
Restructuring the organisation to meet the needs of the changed business, (including at the mine level) is expected to cost $21 million in the year to 30 June 2013.
(B) Pike River acquisition Solid Energy acquired the assets of Pike River Coal Limited (in Receivership) on 17 July 2012.
Under the terms of the Sale and Purchase Agreement, Solid Energy have paid Pike River Coal Ltd (in Receivership) a purchase price of $7.5 million. A deposit of $2.5 million was made on 11 May 2012, with the balance paid on the 17 July 2012 acquisition of the assets.
The terms of the Sale and Purchase Agreement require Solid Energy to pay a further $25 million by instalment, triggered when extraction over a consecutive 12-month period reaches 250,000 tonnes or when the total aggregate extraction over any period reaches 1.25 million tonnes (whichever occurs first).
Due to the significant uncertainty surrounding any potential future mining at the Pike River Mine, the financial effects of the $25 million instalment payments cannot be reliably estimated and no provision will be made for the payments.
(C) Other There were no other significant events after reporting date.
PG76 INDEPENDENT AUDITOR’S REPORT
To the readers of Solid Energy New Zealand Limited and group’s financial statements for the year ended 30 June 2012
The Auditor-General is the auditor of Solid material misstatements that were not Responsibilities of the Auditor Energy New Zealand Limited (the company) corrected, we would have referred to them in We are responsible for expressing an and group. The Auditor-General has our opinion. independent opinion on the financial statements appointed me, Alex Skinner, using the staff and reporting that opinion to you based on our and resources KPMG, to carry out the audit of An audit involves carrying out procedures audit. Our responsibility arises from section 15 the financial statements of the company and to obtain audit evidence about the amounts of the Public Audit Act 2001 and section 19(1) of group, on her behalf. and disclosures in the financial statements. the State-Owned Enterprises Act 1986. The procedures selected depend on our We have audited the financial statements judgement, including our assessment of Independence of the company and group on pages 31 to risks of material misstatement of the financial When carrying out the audit we followed the 76, that comprise the statement of financial statements whether due to fraud or error. In independence requirements of the Auditor- position as at 30 June 2012, the statement of making those risk assessments, we consider General, which incorporate the independence comprehensive income, statement of changes internal control relevant to the preparation of requirements of the New Zealand Institute of in equity and statement of cash flows for the the company and group’s financial statements Chartered Accountants. year ended on that date and the notes to the that give a true and fair view of the matters to financial statements that include accounting which they relate. We consider internal control Partners and employees of our firm may deal policies and other explanatory information. in order to design audit procedures that are with certain subsidiaries on normal terms appropriate in the circumstances but not for within the ordinary course of trading activities Opinion the purpose of expressing an opinion on the of the business of those subsidiaries. These Financial statements effectiveness of the company and group’s matters have not impaired our independence In our opinion the financial statements of the internal control. as auditors of the company and group. Other company and group on pages 31 to 76: than the audit and these matters, we have no s comply with generally accepted accounting An audit also involves evaluating: relationship with or interests in the company practice in New Zealand; s the appropriateness of accounting or any of its subsidiaries. s comply with International Financial policies used and whether they have been Reporting Standards; and consistently applied; s give a true and fair view of the company s the reasonableness of the significant and group’s: accounting estimates and judgements - financial position as at 30 June 2012; made by the Board of Directors; and s the adequacy of all disclosures in the - financial performance and cash flows financial statements; and Alex Skinner for the year ended on that date. s the overall presentation of the financial KPMG statements. On behalf of the Auditor-General Other legal requirements Christchurch, New Zealand In accordance with the Financial Reporting We did not examine every transaction, nor Act 1993 we report that, in our opinion, proper do we guarantee complete accuracy of the accounting records have been kept by the financial statements. In accordance with the company and group as far as appears from Financial Reporting Act 1993, we report that an examination of those records. we have obtained all the information and explanations we have required. We believe Our audit was completed on 30 August we have obtained sufficient and appropriate 2012. This is the date at which our opinion audit evidence to provide a basis for our audit is expressed. opinion.
The basis of our opinion is explained below. Responsibilities of the Board of Directors In addition, we outline the responsibilities of The Board of Directors is responsible for the Board of Directors and our responsibilities, preparing financial statements that: and explain our independence. s comply with generally accepted accounting practice in New Zealand; and Basis of opinion s give a true and fair view of the company We carried out our audit in accordance with and group’s financial position, financial the Auditor-General’s Auditing Standards, performance and cash flows. which incorporate the International Standards on Auditing (New Zealand). Those standards The Board of Directors is also responsible require that we comply with ethical for such internal control as it determines requirements and plan and carry out our is necessary to enable the preparation of audit to obtain reasonable assurance about financial statements that are free from material whether the financial statements are free from misstatement, whether due to fraud or error. material misstatement. The Board of Directors’ responsibilities arise Material misstatements are differences or from the State-Owned Enterprises Act 1986 omissions of amounts and disclosures that and the Financial Reporting Act 1993. would affect a reader’s overall understanding of the financial statements. If we had found
SOLIDSOLID ENERGYENERGY NEWLTD ANNUAL ZEALAND REPORT LTD ANNUAL 2012 REPORT 2012 PG77 REGISTERED OFFICE Solid Energy New Zealand Ltd 15 Show Place Addington PO Box 1303 Christchurch 8140 New Zealand
Tel: +64 (0)3 345 6000 Fax: +64 (0)3 345 6016 www.coalnz.com