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Pike River Coal shares fall after production forecast cut

Fuseworks Media
Fuseworks Media

Wellington, Oct 19 NZPA - Shares of miner Pike River Coal took a hit after the company cut its production forecast.

Details of the financial impact of the revision were expected to be announced in November, with the company saying it was evaluating revised funding requirements, including repayment of a New Zealand Oil & Gas short term facility due in December. Discussions were under way with various parties.

In late morning trading, Pike River shares were down 9c, or 7.6 percent, to $1.09.

In today's statement, Pike River chief executive Peter Whittall said the new production forecast fell in a range between 320,000 and 360,000 tonnes of saleable coal for the financial year to June 2011, most likely somewhere in the middle of that range.

In April the company had forecast production of about 620,000 tonnes for the year to the end of June, itself down from a previous forecast of 700,000 to 800,000 tonnes.

Today's revision was mainly the result of slower than expected progress in developing underground roadways at the company's hard coking coal mine 50km northeast of Greymouth, Mr Whittall said.

Slower roadway development and lower forecast development in the next few months ahead of the introduction of a second ABM20 continuous mining machine and an upgrade to a current machine, would result in some interruptions to hydro production in the New Year.

As a result, previously scheduled high production in May and June would slip into the following financial year.

The revision also took account of an expected ramp-up of the hydro-mining system which the company was more familiar with after several weeks of experience, Mr Whittall said.

The mine plan had also been revised to fall within the parameters of the surface environmental consents. That had resulted in the re-orienting of an extraction area to increase coal recovery, but added some delay in reaching it.

Pike River expected to achieve full hydro system capacity in the June 2011 quarter at a production rate of 60,000 tonnes of saleable coal per month.

From that point, the company expected to continue to ramp up the rate of hydro production to a steady state of 80,000 tonnes a month by the December 2011 quarter.

The company was evaluating the impact of the changed production rates on the coal stockpile, sales expectations and timing and size of specific sales to its customers, Mr Whittall said.

Despite numerous problems, he said the company remained confident about eventual annual production rates.

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

In its annual review, published in late September, Pike River said it had not met its production targets so far due to geological issues and underperforming machines

In its activities report for the June quarter, the company had been expecting production to build to around 40,000 tonnes per month by December, rising to a steady state rate of around 80,000 tonnes per month by next May, equivalent to about 1 million tonnes a year.

At the end of September, the company said it had concluded negotiations for an unsecured loan facility of up to $25m with NZ Oil & Gas, its largest shareholder. The facility, which is repayable on December 15, was to provide short term working capital.

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