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Pike River Shares Fall As Coal Mining Shares Tumble

Fuseworks Media
Fuseworks Media

Wellington, July 3 NZPA - Pike River Coal shares fell 10 percent today partly in response to another general weakening on the sharemarket but more in response to a sharp fall in coal stocks on Wall Street.

Pike River, down 23 cents to $2.17, has only just been promoted to the top 50 index and it has yet to complete a tunnel to the coal seam it plans to tap at its West Coast mine north of Greymouth.

Last week, it put back the date it will reach its target coal seam by a month although it said it would not affect production targets.

A final 215m drive to the Brunner coal seam, including cutting through the Hawera fault, is due to start next week.

The Coal Preparation Plant was expected to be completed by July, a slurry pipeline was essentially complete and the first continuous miner was due for delivery to site in late August.

Pike River has experienced a sharp rise in the cost of the mine development but has previously said this would be compensated for by rising coal prices.

The mine is still expected to produce 100,000 tonnes of saleable coal by March 31 next year and a further 100,000 tonnes in the following quarter ended June 30.

Meanwhile, US traders said stocks in coal mining companies have experienced what they said was a long-awaited correction.

Analysts said the benchmark European price dropped from around $US225 ($NZ300) per tonne to below $US200, which in turn dragged down US prices by as much as $US20.

London's API2 coal swaps plunged by as much as $US24, a fall unprecedented in the past five years of OTC swaps trading. The market experienced a violent correction with swaps falling sharply minute by minute, traders said.

The correction was long overdue, traders said, because prices have risen sharply and steadily for the past few weeks. Prices stabilised around $US2 below physical levels at the close in London.

The Dow Jones coal index was down 13.83 percent in New York overnight.

"We have been waiting for a correction for months," Calyon Securities coal industry analyst Gordon Howald said, adding that some US coal company stocks have risen between 40 percent and 60 percent since May 1.

"It's a correction and not a big deal," he said. "Nothing has changed in the global coal picture."

Mr Howald said that what prompted the correction was the refusal by some Asian utilities to pay $US220 per tonne for steam coal, which was selling for $US170 last week.

"So it corrected down to $US200."

Jeremy Sussman, a coal industry analyst with Natixis Bleichroeder, said US coal producers have been signing contracts "at very good numbers, well into the triple digits, but the stocks don't reflect that.

"We are telling people now is a good time to buy."

Sentiment was mixed but some players were using the decline in the sector as an opportunity to enter bullish option trades after a long awaited pullback.

Miners were the top losers in London, with BHP Billiton , Rio Tinto and Anglo American all falling about 4.4 percent.

On the New York Stock Exchange, Arch Coal closed down 17.2 percent at $US62.21, Consol dropped 14.6 percent to $US95.57, Massey fell 18.9 percent to $US74.87 and Peabody Energy was down 9.3 percent at $US77.90.

NZPA WGT Reuters sml nb

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