Pike River Coal forced into $45 million share issue by rock fall

Pike River Coal's mine entrance. Photo/ Greg Bowker

A rock fall deep underground in Pike River Coal's new 108-metre ventilation shaft has forced the company to go to the market to raise $45 million despite a "difficult" global economy.

The rock fall two weeks ago has delayed the company's ramp-up of production for two to three months: first exports of coal from the mine, about 50km northeast of Greymouth, had been expected in April.

Now its first coal sales won't produce a cashflow until the September quarter, while its first production using a hydro monitor - high pressure water jets to cut out the coal - has been delayed to the December quarter, if it can get the money to pay for the equipment.

Its shares are down 1 cent on the NZX, trading at 79 cents each.

The company said today it intends to issue ordinary shares, with accompanying bonus options, to fund its capital spending until steady production from hydro monitor mining is achieved.

"Pike River Coal has been required to fund the final capital expenditure payments, largely for hydro-mining equipment, from a new equity issue instead of first coal sales proceeds," company chief executive Gordon Ward said.

The issue will also provide some working capital and cover the estimated $7 million cost to fix the shaft, "a portion of which may yet be covered by insurance".

Ventilation to the mine had been expected to be completed by the end of February. The shaft took eight months to construct after being moved further from the nearby Hawea fault than originally planned.

The $45 million raising includes a $41 million renounceable pro rata rights issue to shareholders and a $4 million placement to a major institutional shareholder.

The rights issue offer and placement will be one new share and one bonus option for consideration of 70c, for every five Pike River shares. The company is negotiating the underwriting of the issue.

"Demand for the ultra low ash premium hard coking coal from Pike River Coal's estimated 58 million tonne resource remains strong notwithstanding the difficult world economic conditions," Ward said.

"We are seeking to mitigate the effects of the delay and will be meeting with our steel mill and coking plant customers shortly to appraise them of the status at the mine and to discuss the shipment schedules".

Australian coal producers have started negotiating their benchmark price for hard coking coal to be supplied to Japanese steel mills from April 1, with an expected range of US$130 - US$140 a tonne, well above the US$95 per tonne estimated at the time of Pike River's initial public offering (IPO) in mid-2007, said Ward.

Slumping exchange rates for the New Zealand dollar - down 30 per cent against the United States dollar since the IPO - could boost revenues.

Ward said the rights issue was attractively priced, and the company's main shareholder, New Zealand Oil & Gas Ltd (NZOG), was taking up its 30 per cent pro rata share.

A prospectus for the rights issue is expected to be mailed to shareholders on or about March 25 and the offer will close on April 14.

- NZPA