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Pike River Coal to mine investors for more equity

Tuesday 20th April 2010

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Pike River Coal announced a $50 million equity raising package as it ramps up its hydro-mining operation and begins large-scale production to provide positive cash flow returns.

Pike, which exported its first shipment – 20,000 metric tones of coking coal worth $3.4 million to India in February - is to place $10 million of the $0.88 subscription rate shares with cornerstone shareholder N.Z. Oil & Gas, and Indian customer and shareholder Gujarat NRE.

The remaining $40 million of equity raising will be by way of a renounceable pro rata rights issue to shareholders and optionholders, underwritten by UBS and McDouall Stuart Securities, NZOG and Gujarat. The rights offer is two new shares for every 19 Pike River shares held, and two new shares for every 19 Pike River listed options. Institutions will also participate in the placement.

“The rights issue offer and placement will provide funding through the ramp-up into hydro-mining operations and will also provide a cash buffer of $18 million,” said chief executive Gordon Ward. “The capital raising will provide Pike River with a substantial cash buffer if progress rates are slower than scheduled of approximately 3.5 months based on the current budget.”

Additionally, Pike River has a binding agreement with NZOG to subscribe to a new bond to refinance the existing US$28.6 million bond facility, and the granting of a two-year option to NZOG to purchase Pike River coking coal over the lifetime of the mine at annually negotiated market prices. The agreement with NZOG, announced in February, is conditional on a successful equity raising.

Ward describes the NZOG deal as a refinance of the existing convertible bond facility on more favourable terms.

About 45.5 million new shares will be issued as a maximum, and a maximum of just under 411 million shares will be on issue at the end of the equity raising exercise.

The underwriting of the rights issue and NZOG’s subscription to the new convertible bond is conditional upon shareholder approval at a meeting on May 7.

The use of the funds, as outlined in an operational update will be $21 million as working capital, $10 million for remaining mine development, as well as the cash buffer of $18 million.

Until share trading was halted this morning awaiting the equity raising proposal, Pike River shares had risen 1.85% to $1.10 today; making the share subscription rate at a 20% discount.

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