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Earthquakes, Coal Mine Disasters and World Coal Demand Hits New Zealand South Island West Coast Railway Hard - Might It Close?

Posted on February 14, 2016 at 10:36 AM
The New Zealand South Island West Coast railway network viability is under real threat now.
 
Solid Energy's serious woes continue. They are currently in Voluntary Administration and have now confirmed that closing the Stockton Coal Mine at Ngakawau north of Westport on the South Islands West Coast is a real possibility. This is the source of most of the railable West Coast coal to Lyttelton that is exported to world markets.
 
They are of course trying to find buyers for this mine as a Going Concern. I hope they do.
 
Rail transport of coal will form a big part of any bidders analysis on any possible purchase of the mine. Coal prices however remain very depressed and it is unclear for how long the situation will stay that way.
 
Of course the Rail link north of Stillwater through Reefton and Westport to Ngakawau would most likely close, or in modern day terms be "mothballed", should a buyer not be found and the mine closed.
 
Once, not so very long ago, the West Coast rail route was very busy with :
 
  • Coal ex Ngakawau,
  • Coal ex Reefton,
  • Coal ex Pike River,
  • Coal ex Rapahoe.
  • Gold Slurry ex Reefton
  • Logs ex Stillwater
  • General Freight Forwarding ex Greymouth
  • Dairy to and from Westland Dairy at Hokitika
  • and of course the  world famous "Tranz Alpine" passenger train
 
I thought of this network, as most did, as one of the potentially best pieces of rail business in the country. Alas how things change.
 
But then came:
 
  • The September 4th, 2010,  7.1 Richter scale Canterbury earthquakes that started a nightmare that continues to this day causing the Tranz Alpine to loose over 50% patronage that even now is well behind where it was pre the 2010 Earthquake
  • The tragic Pike River Mining Disaster  of 19th November 2010 that closed the mine
  • The collapse of world coal prices and the subsequent cutbacks and Voluntary Administration of Solid Energy with the company effectively trying to sell most of its mines and shut up shop. This effects pretty much all West Coast Coal that is railable.
  • The end of most of the Gold Slurry traffic from Reefton
  • Logs drying up a bit
 
The only upside is that Westland Dairy has continued to grow although elements of that (like inbound Milk) may be under a threat too.
 
"It Never Rains But It Pours" if you pardon the pun, on the New Zealand West Coast.
 
Tourism is a upside for the Coast but then another Christchurch Earthquake on February 14, 2016 could dent confidence once again on the Tranz Alpine just as it was getting it's Mojo back with bigger trains being run. This could not have happened at a worse time right in its 2016 peak season. What a terrible shame!
 
Recent announcements in February 2016 suggest however that the Tranz Alpine revenue is now back at pre Earthquake levels. This must be on the back of better yeilds rather than passenger loadings though. Actually this is a good outcome and shows better management of the business possibly - but please no more big Earthquakes!
 
Overall though, this story is really quite sad and it seems we are back in the days of the late 1980's again when the whole West Coast Rail link (including the Midland Line) was under threat of closure.
 
Senior Officials at Kiwi Rail, quoted from various sources, recently said that only the line to Ngakawau ex Stillwater is under potential threat. But is this really true in the current climate?
 
Luckily Dairy ex Hokitika's  Westland Dairy plant is still strong and has been growing in recent years but is it,  with the TranzAlpine, enough to sutain the route? Certainly the line north of Stillwater will go if the Stockton mine closes.
 
The West Coast often has been boom or bust in its history and now is a time of some bust and I must say todays Earthquake in Christchurch hasn't helped. I am watching developments with great interest. They really do need some luck.
 
Poor old Kiwi Rail really is getting hammered but as a former colleague said to me once :
 
"It's Old New Zealand Wearing Out"
 
Yes the railway has to reinvent itself.
 
Worst case scenario (same may say best) could see a Taieri Gorge Railway type slow speed passenger line operated privately from beyond Darfield to Arthurs Pass only for the Tranz Alpine and the rest turned into a cycle trail. The parallels to the Otago Central Branch Railway (OCB) are quite scary right down to the Dairy sites on the Canterbury Plains like that Fonterra storage facility on the Taieri Plain near Dunedin on the first section of the old OCB. This would see the first section of the Midland Line to Darfield continue to operate commercially. Of course the TranzAlpine would run from Christchurch to Arthurs Pass and return partially on the Kiwi Rail tracks to Darfield just like the Taieri Gorge train does to East Taieri. But the costs would be likely much higher than the OCB to Middlemarch operation albeit the revenue would be higher if only those Earthquakes would stop.
 
Beyond Arthurs Pass would likely not stay as a operating railway because of the huge costs of the Otira Tunnel and with rugged difficult West Coast terrain beyond.
 
I sure hope something positive happens - a financial analysis of the current situation would be interesting and no doubt someone in KiwiRail is on to that right now.
 
Read the following press clippings for further insight into these developments:
 
Solid Energy has decision "pending" on whether to close Stockton
 
(From Stuff.co.nz website)
 
 
Solid Energy is reviewing whether the Stockton Mine on the West Coast should be closed, and has hinted a decision will be be made soon.
 
The state-owned company, which has entered voluntary administration in a bid to minimise loses to creditors, is undergoing a complete sale of its assets across New Zealand.
 
Chairman Andy Coupe told MPs that Solid Energy could give an update on the sales process around the middle of the year, and would have a good idea of what would be sold before the end of 2016.
 
Solid Energy chief executive Dan Clifford said the company will continue to review whether mines can be sold and if not, they face closure.
 
However, the company appeared to hint that a decision on the future of the Stockton Mine, the largest opencast mine in New Zealand, could be closed.
 
A decision would not be made "tomorrow", Coupe said, but would come "well before June".
 
"What the workers have been told is that the mine is losing money. All sorts of figures have been bandied around about the costs being greater than the coal price. We've been told a decision will be made by June or July about whether it will be closed if a buyer is not found," he said. 
 
The 140 union members were well aware closure was possible by the end of the year. 
 
"It doesn't make it any easier and it makes them feel insecure, but should it come down to that redundancy compensation has been secured with the administrator," he said.   
 
Chief executive Dan Clifford said the company had removed about 40 per cent of the operation plant from the mine, north of Westport, in recent weeks. Asked whether the mine could be closed, Clifford said employees were aware it was a matter being considered.
 
"We're continuing to assess that [closure] now. We've made it clear to employees that we have a decision pending on that."
 
While the company was preparing an information memorandum on its mines and would soon hold site visits for possible buyers, the viability of mines would continue to be under review.
 
"We will continue to assess our assets for profitability. We will continue, irrespective of where we're going we'll continue to do that. We have an obligation," Clifford told reporters after a select committee appearance in Parliament.
"If that means shedding equipment or closing down non-profitable mines, we will do that."
 
Despite reducing costs, Stockton was still reporting "slight" losses.
 
While the company was expecting interest in its mining assets because of the unique quality of the coal, Coupe said it was realistic.
 
"We're not expecting to be knocked over in a rush" by buyers, he said.
 
"There are assets for sale all over the world."
 
Solid Energy's assets had interesting elements to them but they were "very small in the scheme of things".
 
Coupe earlier told MPs that redundancies were "inevitable" and staff appeared to appreciate this. Although head office staff had been reduced from one in five employees to one in 10, it was likely that following the sales process there would be further head office loses.
 
Current employee numbers were about 450, including full time equivalent contractors, down around 1000 on four years ago.
 
Buller mayor Garry Howard said he had a meeting with Solid Energy representatives this week for an update on the sale process. 
 
"My understanding is that closure is a last resort. Sale as a going concern is far more preferable and better for the market," he said. 
 
There had been international and domestic interest in the mine, he said. 
 
"People have visited Westport to view the mine. I hope that the information memorandum is completed as soon as possible to allow buyer interest to come to fruition. I remain hopeful it will be sold. I've got alot of confidence that the mine will attract interest," he said. 
 
The prospect of closure was hanging over the community, which had already suffered hundreds of job losses since the slump in coal prices. 
 
"Solid Energy is being realistic with a depressed coal market. There is a considerable level of anxiety among the workers and that won't change until the process goes through its course."
 
Ends
 
 
And Kiwi Rail Lays Up Rail Wagons from Radio New Zealand News on 3 February 2016.
 
Kiwi Rail Revenue Hit By Lower Coal Volumes
 
Kiwi Rail has given details of how much the collapse of state coal mining company Solid Energy has cost it.
 
Solid Energy went into voluntary administration last year after accumulating unpayable debts of $400 million.KiwiRail transports the bulk of the company's coal.
 
Kiwi Rail chief executive Peter Reidy told Parliament's transport and industrial relations select committee that Solid Energy's failure has hit his company hard.
 
He said 64 percent of its revenue comes from carrying bulk materials like coal, which has slipped in two years from being a $50 million-a-year business for KiwiRail to a $23m business.Mr Reidy said many coal wagons were lying empty on unused tracks.
 
And sadly it's not over yet!! We will keep you posted.

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