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Worse than expected

Minister of Justice, Anders Anundsen, during a visit in the Lunckefjell mine a few weeks ago. Store Norske has a deficit of 225.1 million kroner for the first nine months of 2014. FOTO: Christopher Engås

Worse than expected

2014 may be one of the worst years in Store Norske's history, but employees believe the company should be able to steer itself into calm waters.

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While the board of directors was completing its first meeting with the state-owned companies department of Norway's Ministry of Trade, Industry and Fisheries (NFD), the report for the company's third quarter arrived.

The report shows the situation is worse than expected. The coal company has a deficit of 225.1 million kroner for the first nine months of 2014. That is 172.7 million worse than the same time last year and 140.4 million worse than the second quarter of this year.

Loss of 400 million
The per-ton price of coal is $13.90 lower than last year and forecasts indicate it will remain low for a long time to come. When Store Norske last made plans to deal with the new price situation, coal was roughly $83 a ton. Prices have dropped below $72 per ton at their lowest point in recent months.

It is also clear there are major unexpected operational costs after the company encountered a lot of blocking stone while trying to establish extraction areas in the new Lunckefjell mine. The bill for those may be as high as 100 million kroner.

Unless there are surprises, it means the state-owned coal company risks a loss of about 400 million in 2014. If so, it will be the largest deficit in its history.

Moving quickly
The board of directors is calling the situation "very serious" and announced in late October it will enter into discussions with the central government, employees and banks. There is also an urgent sense to find solutions to establish profitable operations again, with the NFD receiving a briefing about the situation during a preliminary meeting Monday. Next, the board will propose changes.

"It is important to work as quickly as possible, but we must do a good job," said Annette Malm Justad, the board's chairwoman, in an interview with Svalbardposten. "We're not talking about days, but by the end of November we should have come a long way."

She warned there will be "significant changes" in the operation of Store Norske that will affect all employees.

"The starting point for the work now being done is that significant changes in operational procedures will have to come quickly," Justad said. "Once the measures have been thoroughly reviewed and a suggested solution is available we will provide new information. We want during this process to work closely with the union representatives of Store Norske."

'Good starting point'
On Wednesday, Justad was on inspection of Svea and Lunckefjell to see the facilities and talk to the workers. Accompanying her was Arild Olsen, the company's union steward. Store Norske has gained some experience with restructuring and Olsen showed how the last master plan based on a coal price of $83 a ton is holding up. Without a fall in prices, the company had managed, but now it must make a new plan, he said.

"Now we probably must look at it with new eyes," he said. "This is going to be a challenging exercise and regardless of what we get it must be something everyone sets behind them."

How are employees responding?

"Of course, people are afraid for their jobs, that is obvious," Olsen said. "But at the same time they believe that there is potential in the company and that is a great starting point."

Is he worried about jobs?

"Personally, I am not because I sincerely believe that there is potential in the company," he said.

Olsen said it is not surprising the board is warning about its harder circumstances and he would have been more surprised if it had not acted.

Now they have to find a production method that provides a more proper ratio between volume, prices and costs, and ensures the company's future, he said.

Considering
Minister of Trade and Industry Monica Mæland been informed of the situation and Prime Minister Erna Solberg (H) said Sunday the government will not promise anything, but as the owner it will consider the matter. The starting point for Store Norske is the company will operate on commercial principles and profitably. At the same time, the coal company is a political instrument for achieving stable, Norwegian settlements in Svalbard. Solberg repeated during her visit to Longyearbyen this week that Svalbard is strategically important for Norway's role in the Arctic.

"We have to go in and see what we are allowed to do, what we can do and what projects the company actually has to get for profitable operation again," said Solberg, referring to questions about whether it is appropriate to step in and help Store Norske.

When the board, along with the management of Store Norske, again sits around the conference table at the NFD, they will provide details about what Solberg is asking for.
 
Delays
A high stone content in Svea Nord makes it expensive to produce coal there because more must be extracted to achieve sales volumes. In addition, the coal must be purified of rock.

In Lunkefjellet there have also been significant problems this year with machinery, equipment, difficult geology and surprises from blocking stone. The blocking stone caused the operation of panel to cease and the coal had to be depreciated. The result of this is the initial stages of operation have been slower than planned.

The plan was for the first longwall stope to begin operating in of March of 2015, but Store Norske is no longer certain and stated in a report there is also a risk of delays there.

Olsen said he generally believes the problems must be taken into account before the mountain's fate is known. 

What does he think needs to be done?

"That is premature," he said. "We are seeing the rough sketches now."


Translated by Mark Sabbatini

Se bildet større

"This is going to be a challenging exercise, and regardless of what we get, it must be something everyone sets behind them", union steward Arild Olsen says. FOTO: Line Nagell Ylvisåker

Se bildet større

"It is important to work as quickly as possible, but we must do a good job", chair of Store Norske, Annette Malm Justad, says. FOTO: Eirik Palm

Se bildet større

Prime Minister Erna Solberg gave no promises during the visit in Longyearbyen last week. Here she has a conversation with Governor of Svalbard, Odd Olsen Ingerø, minister of justice, Anders Anundsen and minister of health and care, Bent Høie. FOTO: Eirik Palm

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