By Jenny Ruth
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Wednesday 3rd March 2010 |
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New Zealand Oil & Gas's first-half result, a net loss of $6.5 million, was overwhelmed by its support for its "prodigal child," 29.5%-owned Pike River Coal's recapitalisation, says ASB Securities analyst David Boyce.
NZOG is subscribing for its share of Pike's $50 million share issue, will provide a $US28.9 million ($NZ42 million) convertible bond facility replacing US-based Liberty Harbour and a $15 million bridging loan. NZOG will get a two-year option to buy up to 30% of Pike's production for the remaining life of the mine at market price.
"While we do not regard NZOG committing this heavily to Pike as an ideal outcome, we are at least relieved that a deal seems to have been done," Boyce says.
The option may help NZOG when it comes to sell its stake. "While this could possibly put NZOG back into the coal market as an active participant, it's likely an attempt to assist with the future sale of the Pike stake to an industry player," he says.
NZOG will be paid 10% interest on the convertible bonds. "We are not crazy about this part of the package," Boyce says, adding that 10% interest doesn't reflect the risk or what Pike would have to pay a third party lender and it deepens NZOG's exposure to a non-core investment.
ASB Securities Investment rating: marketperform.
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