21 Apr 2010

Coal firm expects higher prices

1:09 pm on 21 April 2010

Pike River Coal says an industry move towards quarterly pricing of coal contracts, instead of annual, will result in higher prices in the future.

The listed miner is raising $90 million to repay an investor and ramp up the start of its hydro-mining operation, which will allow it to become a large scale producer.

However, Pike River Coal says it won't start hydro mining until the September quarter, and once it does, it will take up to 10 months to reach full production, compared to the three months previously estimated, due to the difficult terrain of its underground mine.

Pike River Coal managing director Gordon Ward says the company will benefit from higher coal prices, and a change in the way it is sold.

He says the move for more regular pricing is driven by BHP, which says it will get better prices on average during the year.

Pike River Coal says it has encountered delays in becoming a large scale producer due to the complex geology of the terrain and Department of Conservation restrictions.

General manager of mines Peter Whittall says one of the problems is that the company is only allowed to make small tunnels underground, which slows the extraction process, and any change in its operations must be approved.

As a result of longer lead times to start hydro-mining, Pike River has lowered its production forecast from about 800,000 tonnes to 620,000 tonnes for the year to June 2011.

The company's second shipment of 20,000 tonnes of coal has also been pushed back until July.

The company proposes raising $50 million through a rights issue and share placement, and a further $40 million through a bond issue to its largest shareholder, New Zealand Oil and Gas, which will allow it to repay another investor, Australian-based Liberty Harbour.