Daily ShareChat: Pike River Coal

Pike River Coal's fourth quarter activities report and the rate at which it is burning cash was a negative surprise and highlights the company may have to find more cash, says Andrew Harvey-Green, an analyst at Forsyth Barr.

"Cash burn for the fourth quarter was $23.3 million, a monthly rate of $7.8 million. If that rate was to continue and the next coal shipment was delayed three weeks, cash will run out in September," Harvey-Green says.

"It is therefore crucial that Pike ramps up production as profiled." At current coal prices of about US$180 (NZ$247.52) to US$190 a metric tonne, and the current cash burn rate, Pike needs to sell more than 30,000 tonnes a month to be cashflow break even, he says.

Still, he doesn't expect yet another capital raising because the company is throwing a lot of resource at getting production rates up and, once it starts hydro mining, "30,000 tonnes per month should be easy. Any cashflow shortfall is therefore likely to be short lived and less than $5 million, assuming coal prices do not materially fall further."

Reasons to be concerned are the company delayed its second coal shipment by about a month and its planned start to hydro mining in mid-September is also a little later than expected. "These delays, while minor compared to past delays, highlight that Pike is yet to get on top of its operational forecasting."

Recommendation: Accumulate.

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