Store Norske reports 234M kroner loss for first half of 2015; revises loss for 2014 to 902.2M instead of 537M

storenorskesvea

Store Norske’s catastrophic financial situation plummeted further into the abyss with the release of a second-quarter report showing the company lost 234 million kroner during the first half of 2015 and its record-breaking loss for 2014 was 902.2 million kroner, rather than the 537 million kroner stated at the end of the year.

The loss during the first half of this year comes despite a massive cutback in operations and expenses, with the company laying off about 30 percent of its employees and reducing coal mining by half to only the most financially beneficial deposits. Low coal prices – made worse by a sharp drop in the krone against the dollar during the past year – are primarily responsible for the crisis.

“The main reason for the weak result is low production for the quarter and consistently lower coal prices,” the report states. Furthermore, “the company also realized a loss on foreign exchange contracts of NOK 260 million.”

Store Norske earlier this year obtained 500 million kroner from the Norwegian government – in the form of loans, and the sale of the company’s property and infrastructure – to offset the reported year-end loss of 537 million in 2014. But the company’s second-quarter report for this year reveals the loss was actually far higher.

“The reason was that the company had to take large write-downs on fixed assets and a final clarification concerning this did not come until May 2015,” wrote Wenche Ravlo the company’s administrative director, in an e-mail interview.

Coal prices have continued to slump this year and, with no recovery in sight, Store Norske’s board of directors announced Aug. 27 it plans to lay off all but 100 of its 270 current employees by next summer and shut down all mining except the relatively small operation at Mine 7, with the hope of reopening its other mines within three years if prices recover.

Store Norske, which was literally days from having its line of credit cut off and perhaps a couple of weeks from bankruptcy before getting the assistance package, ended the second quarter of this year with an available liquidity of 398 million, compared to 115 million kroner in 2014.

Coal production during the second quarter of this year was 277,000 gross tons and 263,000 net tons (the amount produced after the stone content is removed), compared to 689,000 gross tons and 489 net tons a year ago. Net production for the most recent quarter was 243,000 tons at Svea and 20,000 tons at Mine 7.

Store Norske, as part of its previous restructuring plan, is limiting its extraction to only the most profitable deposits in its mines. As a result, the average stone content in coal extracted at Svea during the second quarter of this year was 5.7 percent, compared to 25 percent during the first quarter of the year.

Similarly, the company is hoping to double its operations at Mine 7 because the higher-quality coal there can be sold for higher prices than energy-grade coal.

Company and government officials have stated Store Norske’s survival may depend on branching out into other related industries. Among the few positive aspects of the second-report were promising results and projected potential growth in its non-mining entities.

The company, for instance, owns 55 percent of the logistics company Pole Position and is hoping to take advantage of the city’s plans to build a new harbor and attempt to lure industries interested in developing expertise in Arctic conditions.

“The second quarter of 2015 characterized by high activity related to the company’s involvement in North Pole traffic, and the preparation and commencement of shipping season,” the report states. “Through its decade-long partnership with stakeholders in the area, the company is well positioned for further growth in these segments.”

The company is also planning to open the non-operational Mine 3 as a museum and guided tour attraction next month, is significantly expanding rentals of property to non-company employees, and launched the subsidiary company Store Norske Momentum to explore possibilities in alternative industries.

Ravlo said that while the announced cutbacks are severe, the board’s actions will also make it possible for Store Norske to work toward a more diverse future.

“It provides the basis for jobs in Longyearbyen, the development of infrastructure at Svea into something more than it is today, mining technical/industrial expertise is retained in Longyearbyen and, not least, it is an opportunity to realize the great metallurgical coal we have in Lunckefjell if coal prices turn,” she said.