Specialist hard-coking coal-miner Pike River Coal delivered a string of bad news to shareholders - who hammered its stock - yesterday, after announcing further delays to to the start of exporting its premium grade West Coast coal.
While its full-year result of an after-tax loss of $13 million was expected, and it holds $22 million cash in hand, the company yet again pushed out the production date by a further three to four months, prompting an initial aggressive share sell-down.
Management also raised the possibility that further capital might have to be raised to aid cash flow for production. The company could yet have to pay a bond-holder a penalty of more than $2 million for missing a production deadline.
Shares in Pike River yesterday opened down 14c at $1 in aggressive trading, but steadied and began to retrace some losses to $1.05 by about midday.
Pike River has spent $271 million during the past three years tunnelling 2.3km into the rugged Paparoa Ranges near Greymouth on the West Coast, having floated in June 2007 raising $85 million.
In April this year, it raised a further $41 million in a rights issue to see it through the $7 million rebuilding of a destroyed shaft, and ensure enough cash for production.
ABN Amro Craigs broker Peter McIntyre said the further production delay was surprising and of some concern to the market, and was reflected in the spirited selling.
The main concerns were the lack of detail about how much might be needed from a further rights issue, and whether the bond-holder would support Pike River by granting an extension and deferring the penalty payment.
"This is disappointing for shareholders. But inevitably there are delays getting to production in the mining sector," Mr McIntyre said.
Forsyth Barr broker Peter Young said there was also a high chance that New Zealand Oil and Gas, its largest shareholder at 28% and the company which spun-off Pike River, "may be shoulder-tapped for the short-term finance".
"The share price will probably fall back, but the long-term prospects for coking coal look good," Mr Young said.
Pike River intends to stockpile up to 30,000 tonnes, worth about $NZ5.6 million at $US128 ($NZ187) a tonne, which could be sold on the stock market.
Its first 60,000 tonne export order - scheduled for mid-November - is now delayed until between January and March. The company's plan is to deliver 800,000 tonnes in the first year, and 1 million tonnes per annum thereafter.
Pike River management highlighted that its Indian customers, contracted to take 75% of production, were accommodating about the delay and the outlook for coking coal prices was bullish. China has been forecast to increase hard-coking imports from 2.5 million tonnes to 12 million, and possibly 20 million further out.
Global hard-coking spot prices were about $US168 a tonne, compared with the 2010 contract price of $US128.
Pike River executive Gordon Ward said a formal proposal was being put to bond-holder Liberty Harbor LLC to extend the deadline by six months, and talks to date had been favourable. He hoped for a response as soon as possible.
"The Pike River mine has overcome many challenges to get into operation and while the current delay is frustrating for investors, customers and staff, it is an issue that many new mines have to face and work through.
"Most of the hard work has been done and investors' patience is set to be repaid, with Pike River producing low ash coal at a time of rising global demand," Mr Ward said.
