Shares in dual-listed Pike River have gained almost 12% during the past two days, rising from $NZ1.67 to $1.87 since announcement of the coal contract.
While Pike River is contracted to deliver its first coal at $US300 per tonne, its management is confident subsequent forward contracts covering from March 2009-10 will be in a similar range of $US270-$US300, being picked by analysts.
Pike River is yet to start coal production - scheduled for early next year - but after 21 months tunnelling and several delays is within striking distance of the coal face, having tunnelled more than 2km into the rugged Paparoa Ranges, 45km northeast of Greymouth on the West Coast.
Its tunnellers have started work on breaching the 50m wide Hawera fault of gneiss (hard rock) before completing the 165m to the Paparoa coal face - 2.3km from the portal - to reach the estimated 17.6 million tonnes of coal it believes is recoverable.
The Pike River project was originally based on coking coal prices of $US40 per tonne, which by January last year had risen to $US98 per tonne and had since been reset at $US300 per tonne.
Indian and Chinese demand have prompted a huge demand for the high quality coking coal, which is a key ingredient in producing steel.
Pike River chief executive Gordon Ward said when contacted at the site yesterday he expected more than 10,000 tonnes of coal to be extracted and sold to India and Japan by March 2009, with full year to June production forecast at 200,000 tonnes, then full production over 18 years of more than 1.3 million tonnes per year.
He described the present $US300 prices as "very beneficial", but noted the first few months' production would be low volume before hydro mining, a form of water-blasting, was installed and began in earnest in May or June next year.
Indian equity shareholders Gujarat NRE Coke Ltd and Saurashtra Fuels Private Ltd have contracted to purchase about 55% of production during the next 18-plus years, while the Japanese steel mill contracts cover the remaining 45% production and run for a minimum three years.
ABN Amro Craigs broker Peter McIntyre said Pike was enjoying a "timely run", with Queensland floods interrupting the global supply of hard coking coal while demand from China, India and Japan was increasing.
While recommending the stock to investors, he highlighted the "extreme volatility" of the coal sector in general and cautioned the driving forces behind the present supply and demand "could dissipate just as quickly".
Mr Ward said in coming months a pit bottom would be constructed, pumps and reservoirs installed and the ventilation system completed.
Once the mine was in full production, the coal would be hydro-mined, mixed with recycled water and be gravity assisted down the 1:11 gradient in a 2.3km flume to the portal then pumped 11km beside the access road in a 275mm pipe for stockpiling, before being taken by train to Christchurch for export.
Mr McIntyre's financial disclosure document is available on request.
