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Global slowdown may hurt coal prices

Friday 17th October 2008

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Pike River Coal, which reached coal at its mine after two years of tunneling, said the global financial crisis is likely to curb steel production next year, which may erode prices for coking coal.

Shares of the mining company rose 5.4% to NZ$1.36 and have gained 10% this year while the benchmark NZX 50 Index fell 30%. The stock surged even before the tunnel was complete after it agreed sales of the output at US$300 a metric ton, more than three times the price envisaged in its IPO.

The financial crisis is "likely to have some negative impact on next year's steel production in some regions and therefore potentially on coal prices," chief executive Gordon Ward said. Still, that may be partly offset by a weaker New Zealand dollar, he said.

The mine in the South Island's Paparoa Range is scheduled to produce its first 100,000 metric tons of coal by March and the same volume again by June. After that it will ramp up to an annual 1 million metric tons.

The 2.3 kilometre tunnel is the largest and longest in New Zealand since the second Manapouri tunnel in 2001, the company said in its statement.

Pike River plans to extract at least 17.6 million metric tons over the next 18 years.

By Jonathan Underhill

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