Pike's 2.3km tunnel into the rugged Paparoa Ranges, 50km northeast of Greymouth on the West Coast, has cost $247 million in development over more than two years and has suffered several setbacks, the latest being a ventilation shaft collapse in February which has delayed production by three months.
About 50 southern shareholders attended a Pike briefing in Dunedin yesterday, one of nine meetings across the country to be updated this week on the ventilation shaft problems and reasons behind the $45 million share issue, of which $41 million is fully underwritten by McDouall Stuart and founder and now 30% cornerstone investor, New Zealand Oil and Gas.
Pike managing director Gordon Ward, in answering a question from the floor, said the company's "dividend policy" would be to deliver "a minimum 50% of the available after-tax cashflow" for shareholders' dividends, which would have buoyed the confidence of those considering reinvesting in the share issue with options.
However, ABN Amro Craigs broker Peter McIntyre was sceptical of the "dividend policy", highlighting that in these recessionary times, most companies were being prudent and retaining cash on their book, including from cuts or cancellation of dividends, such as, respectively, Fletcher Building and Scott Technology this week.
"Pike River is not a utility stock which shareholders are in for dividend. They own Pike River for capital gain in the share price and any [dividend] payout will be low," Mr McIntyre said after the meeting.
Mr Ward and chairman John Dow were upbeat when agreeing the miner had had its fair share of "challenges" during development, but highlighted that, at today's prices, the annual 1 million tonnes of coal extracted over 18 years equated to sales worth $3.8 billion.
Mr Ward told the shareholders the $45 million sought, of which AMP Placement had recently taken up $4 million, was because of capital requirements during the three-month delay, covering $26 million in delayed coal sales, $7 million in repairs to the 105m deep ventilation shaft, $6 million in ongoing running costs and a further $6 million as a "buffer" covering reduced coal sales.
Every shareholder buying five of the new issue 70c shares will, in the next two years, have an option to buy a further one share for $1.25.
If this offer was fully taken up, Pike River could reap a further $73 million.
When asked by a shareholder what the $73 million would be used for, Mr Ward said Liberty Harbour LLC, which has $US27.5 million ($NZ52.5 million) in convertible bonds could call for payment in 2.3 million additional ordinary shares, or cash-equivalent, which could come from the $73 million.
Other options for the $73 million could be to develop the Paparoa coal seam below the Brunner seam which, in one test hole last week, was found to be 9m thick as opposed to 3m in other "thin" areas.
It could add 200,000-300,000 tonnes per year to production, but Mr Ward emphasised no financial outcomes had been projected into company reports from Paparoa's potential, which would be further drill-tested during the next 18 months.
The ordinary shares and options offer closes on April 14.
