Leading Australasian broking house Goldman Sachs JBWere said that the government should cut Solid Energy some slack and allow the Spring Creek underground coal mine to stay open with reduced commercial expectations while global coking coal prices are low.

Such a move would be justified by the combination of slowing global growth and a very high New Zealand dollar, which is choking exporters but is the result of importing other people's problems.

In a research note, JBWere's New Zealand head of strategy Mr Bernard Doyle said that the government should emulate the Obama administration's bail out for the car industry in 2009 or repeat its own nine day fortnight initiative, which helped Fisher & Paykel Appliances survive the global financial crisis.

Mr Doyle said that "There is a growing role for the government to provide targeted, temporary support to the productive sector. The review of the Spring Creek mine is an impo4rtant precedent for the government: providing an opportunity for temporary, targeted relief to a state owned business with both regional and industry significance."

Prime Minister Mr John Key said that the government expected a report from the new chairman of the state owned coal miner Solid Energy, Mark Ford, on the future of the Spring Creek mine in a week.

He added that "It's fair to say that there have been some real concerns about the viability of Spring Creek for at least the last 12 months. We want to look very closely at the matter."

Mr Doyle suggests the government could direct the board of Solid Energy to take a long term view about the mine's commercial viability, based on the known volatility of coal prices. He said that "The government already owns Solid Energy. This is not a bail out. It would be a case of the shareholder providing the board with a longer time horizon to assess the economics of the mine."

Solid Energy announced the likely closure of the Spring Creek mine a fortnight go, saying its economics had been uncertain for some time, and that a plunge in the international price of coking coal, used in steel production, had placed its future in jeopardy.

The company is slated for eventual partial privatization, although a series of write offs from mine closures and various attempts at new subsidiary industries means it has been taken off the for sale list for now.

The mine is a major employer on the West Coast of the South Island, with around half the people with jobs in the region relying on mining, and the industry supporting retailers, housing and accommodation, as well as transport, health and education infrastructure.

Source - Business Desk

(www.coalguru.com)