Daily ShareChat: Pike River Coal

By Jenny Ruth

Wednesday 29th July 2009

Pike River Coal's six weeks delay to mid-November in its first sale of coal is disappointing, says Forsyth Barr analyst Andrew Harvey-Green.

"While Pike River believes it can absorb the delay, any further delay may have greater ramifications," Harvey-Green says.

The company says it has sufficient funding to cover the delay and meet the Liberty Harbour covenant of having average monthly production of 66,667 tonnes by November 30. But "we are concerned any further delay will require Pike River to seek additional capital and renegotiate the loan terms with Liberty Harbour."

Still, obtaining additional finance "should be relatively easy if the first shipmen6t of coal is imminent at the time." However, Liberty Harbour extracted a 400 basis point penalty for the coming missing production targets following the ventilation shaft collapse "and we would expect Liberty Harbour to drive a similarly tough bargain if the covenant is breached again," Harvey-Green says.

Potential penalties include a hike in interest rates or a change in the terms for converting the loan to equity.

"The coal has not gone away so the long-term value story remains unchanged," he says. "However, the short-term risks are significant."

With the coal price agreed for 2010 settled at $US128 a tonne, that values the first coal shipment at $11.8 million with the New Zealand dollar at 65 US cents.

BROKER CALL: Forsyth Barr rate Pike River Coal (NZX: PRC ) as hold.

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