Pike River delays to reduce revenue for early coal shipments

Monday 16th March 2009

Pike River Coal, the mining company seeking to raise NZ$45 million selling shares to tide it over until coal sales start, said delays are likely to reduce revenue for early shipments.

The mine in the Paparoa Ranges north of Greymouth suffered a set-back last month with a rockfall in a ventilation shaft needed to vent mine gases and provide fresh air. Costs to repair the shaft are estimated at NZ$7 million and production has been set back by three months.

"This rights issue is to provide the working capital needed due to the delay in cashflow from coal production and to meet shaft rectification costs," managing director Gordon Ward said in the investment statement for the share sale.

Pike River has been in talks with steel mill and coking plant customers about a revised shipment schedule, the company said. The customer's contracts "allow some flexibility with schedules but the delays in coal shipments are likely to reduce the revenue that Pike River will receive for its early coal shipments," according to the statement.

AMP Capital Investors, New Zealand's largest fund manager, is supporting the capital raising, agreeing to buy 5.7 million ordinary shares at 70 cents apiece, raising NZ$4 million. Under the terms of the offer, AMP will also receive the same number of options to buys shares.

New Zealand Oil & Gas, which owns 30% of Pike, will also provide support by agreeing to take up its full entitlement.

Pike River cited brokers estimating premium hard coking coal prices to Japan will be US$120 to US$130 a tonne in 2009, above the US$95 a tone estimate at the time of the company's initial public offering. Returns will also be boosted by the New Zealand dollar's 30% decline versus the greenback since the IPO, it said.

Shares of Pike River rose 1.3% to 81 cents before being halted for the capital raising and have fallen 11% this year. NZOG fell 3.5% to NZ$1.39 today and has gained 13% this year.

Pike River's mine has New Zealand's largest-known high-value hard coking coal deposit, with 18 million tones scheduled to be extracted over 18 years. The company has contractual agreements to sell 76% of output in the three years to March 2012.

Businesswire.co.nz

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