By Jenny Ruth
Tuesday 2nd November 2010 1 Comment
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Pike River Coal's production downgrade is much more severe than analysts had anticipated, says Craigs Investment Partners.
Last month, management again downgraded its production estimate for the year ending June 2011 from 620,000 tonnes to about 340,000 tonnes.
"We had anticipated 500,000 tonnes and factoring in the new expectation halves our EBITDA (earnings before interest, tax, depreciation and amortisation) estimate for 2011 to $31 million," Craigs says.
That compares with Pike's $40 million EBITDA loss in the year ended June this year. Craigs is forecasting EBITDA will rise to $181 million in 2012 and to $237 million the following year. That assumes Pike's steady-state production rate will be 920,000 tonnes a year.
It notes Pike still needs to refinance its $25 million loan from major shareholder New Zealand Oil & Gas before December 15. Pike intends to make an announcement on this some time in November.
Craigs lists key downside risks to its $1.29 target price for Pike shares as the company being unable to raise debt financing to meet cashflow requirements, falling coal prices, a negative assessment of its reserves, further production delays or a failure to meet production forecasts, breaches of resource consent limiting production and an increase in extraction costs.
Recommendation: buy (up from hold, reflecting the steep fall in the share price).
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