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Pike River Coal confident despite lower production forecast

Fuseworks Media
Fuseworks Media

Wellington, Oct 19 NZPA - Pike River Coal remains confident it will eventually meet production forecasts at its underground mine near Greymouth, but investors were not slow to show their disappointment after the company cut its forecast again today.

The new production forecast of between 320,000 and 360,000 tonnes of saleable coal for the financial year to June 2011 was well down on April's forecast of about 620,000 tonnes, mainly due to delays in developing roadways at the underground mine.

Shares in Pike River, which has already cut initial production forecasts, plunged 10 percent to a month low of $1.06 today.

"This company has had a lot of production delays and cost blowouts previously. It has been hammered pretty hard today on the back of that because the market's probably run out of patience a little bit with it," Forsyth Barr sales trader Jared Butters said.

However, the stock still had solid support, and a positive outlook for coal prices meant the company should be in a good position once it started meeting production forecasts, Mr Butters said.

Production started in mid-2009 after a decade of development at the mine, expected to yield at least 18 million tonnes of hard coking coal for export to international coke makers and steel mills, over about 18 years.

Pike River was still getting to grips with using hydro-mining at the site, but expected to achieve full hydro-system capacity in the June quarter next year.

From that point, the company expected to ramp up hydro-production to a steady state of 80,000 tonnes a month by the December 2011 quarter, missing its forecast of May 2011.

Formerly Pike River's general mines manager, new chief executive Peter Whittall said today's forecast was conservative and achievable.

"I've gone to the now senior management team on site and said, 'look, you do me a forecast that you can absolutely guarantee you can achieve, and I'll promise not to tinker with it'," he told NZPA.

Previously, the company had adopted the higher end of forecasts provided by mine staff, including himself, he said.

"There's upside in this model, where there's probably not been much upside in any of the previous ones."

Production would be reviewed later this year, after the next export shipment and a few months' hydro-mining.

Despite the problems, he was confident about eventually meeting annual production rates.

"This remains a great project, the scale of which is as we have always planned."

The company was evaluating the impact of the changed production rates on the coal stockpile and sales, and was also looking at revised funding requirements, including repayment of a short-term facility with New Zealand Oil & Gas (NZOG).

"We need to refund that $25 million current funding by the middle of December ... and what we're doing at the moment is just looking at how we would fund any other requirements over and above that $25m and indeed what that quantum would be if any," he told NZPA

The favoured option would be issuing debt, but other scenarios were also being looked at.

Approaching NZOG, its largest shareholder, again was not among the options currently being considered.

"We're an independent company looking at our own options, and we'll evaluate these over the next period of time," Mr Whittall said.

The company would announce more details about financing next month.

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