State Coal loss predicted

Press, 11 October 1985, Page 29

State Coal loss predicted

PA Wellington State Coal Mines is predicted to lose $42.4 million in the 1985-86 financial year, according to the Ministry of Energy report tabled in Parliament. Clearly an urgent need

existed for financial restructuring to give it an equity capital base and a more commercial financial structure, the report said. It had a $38.2 million deficit in 1984-85.

The report said that there were two main reasons for the worsening financial position. Low State Coal prices had resulted in revenue not covering the full production costs including interest, and with an increasing accumulated deficit and over-all debt, interest charges were becoming an increasing proportion of operating costs and the net loss.

According to the report, State Coal Mines expects to make a profit this financial year before interest expenses of $1.5 million. After interest expenses of $44 million has been added, it is expected to make a $42.4 million loss.

There was no buffer to absorb losses as it had no equity capital base. The result was a compounding interest cost on loan capital provided to finance the accumulated deficits.

Financial planning models showed that restructuring to a 40 per cent debt and 60 per cent equity would allow it to become profitable within two years. Without restructuring the trend would continue where operating surpluses were totally absorbed by an increasing debt cost.