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Early payout for Pike River contractors proposed as insurance deal emerges

Monday 12th September 2011

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Pike River Coal receivers have negotiated an $80 million full and final insurance payout deal which will see priority creditors paid in full and 29% shareholder New Zealand Oil & Gas, facilitating an early payment plan for the mine’s 465 unsecured creditors.

Under the terms of the deal, which still requires formal execution, priority right holders Bank of New Zealand and the owners of leased mining equipment will be paid out a total of $29.5 million.

Despite having priority rights, NZOG has announced it will continue to support West Coast businesses and families affected by the Nov. 19 disaster, which claimed 29 lives when the mine exploded, by offering an early repayment scheme for unsecured creditors.

Under the proposals, unsecured creditors will be paid up to a cap of $10,000 plus 20% of any outstanding amount above that, up to a capped aggregate of $10.5 million. Some 243 unsecured creditors are expected to be paid in full and another 222 partially repaid under these arrangements, assuming they are supported 75% at a special creditors meeting, to be held imminently.

Investors breathed a sigh of relief at the insurance announcement, bouncing NZOG shares up 5.9% to 72 cents on the announcement on the NZX this morning, after NZOG came out of a trading halt called ahead of the details becoming public.

While Pike River’s total available insurance cover was capped at $100 million, the mine’s receivers have agreed to a full and final settlement of claims under those policies valued at $80 million, NZOG said in a statement to the NZX.

Settlement proceeds should be distributed around the end of this month.

Approximately $6.3 million will be paid to the owners of leased mining equipment arising from their priority rights, with a further $23.2 million due to BNZ as a first ranking secured creditor.

“As the other first ranking secured creditor, NZOG has legal priority to all of the remaining monies,” said NZOG chief executive David Salisbury. But “NZOG recognises the huge and ongoing impact the tragic events have had on the West Coast community.”

“Hopefully all of Pike River’s creditors can receive full payment when the sale of the mine occurs. However, for the mine workers, contractors and suppliers this has been a very stressful time, emotionally and financially. We therefore support the Receivers using some of the insurance payout to make a voluntary early payment now to all unsecured creditors.”

Unsecured creditors are not being asked to reduce their total claim and will still be entitled to claim for the full remaining balance, once the receivers complete the sales process. Interested parties, including state-owned Solid Energy have been undertaking due diligence on the underground mine in the Paparoa Ranges in recent weeks, at the same time as a royal commission of inquiry uncovers a raft of failed or non-existent safety measures following the explosions.

Unsecured creditors will be asked to agree to a moratorium on certain actions they could otherwise contemplate, including seeking the appointment of a liquidator, to support the sales process, NZOG said.

“As the total amount available for early payment to unsecured creditors under the proposal is limited, the amount to be paid to each creditor may need to be reduced if actual claims accepted are greater than the amounts of claims known to date,” said NZOG.

NZOG will receive $3 million as part-payment of its total unsecured debt of $15.1 million, with the remainder of the insurance settlement paying off approximately $38.3 million of the $53 million in secured debt held by NZOG. This will reduce NZOG’s remaining debt to $14.7 million secured and $12.1 million unsecured.


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