Mine boss says coal prices should offset costs

By NZPA

Wednesday 24th October 2007

Pike River Coal shareholders have been told the company is poised to benefit from an expected jump in hard coking coal prices next year, offsetting increased development costs.

The listed company, which expects to hit first coal in April next year, held its a nnual meeting near Greymouth today, its first since publicly listing .

Chief executive Gordon Ward reviewed the year, which included a fully subscribed float in July for $85 million , and a $11m jump in costs, mostly due to increased tunnelling.

That pushed the company's development budget to $185 million, which it expected would be "more than offset" by higher coal prices.

Market observers were currently expecting hard coking coal to sell at about $US120-125 per tonne from April next year, Ward said, compared to the current price of $US96 per tonne.

Demand from India and China continued to be "highly influential," and 70 percent of the company's first three year's production has already been sold under long-term contract.

All Pike River's coal would be exported and was expected to be sold in US dollars. Although a lower kiwi dollar was advantageous once in production, a high Australian exchange rate typically meant higher international coal prices because Australia was a dominant coal supplier.

Production after hitting first coal is forecast at 240,000 tonnes in the year ending April 2009, building to 1 million tonnes by April 2010.

Ward said Pike River would still be a relatively small player internationally, compared to 135m tonnes traded globally in 2006.

However, its premium coal had some very good selling properties, including low ash content, which had created demand from international steel mills and coke makers.

Ward said the April target for hitting first coal was a month later than forecast, and there was a chance it might be up to three months' late.

Pike River made a loss of $657,000 in the year ended June 2007, which the company said should be viewed in the context of its current pre-production activities.

Mine development since July 2005 had cost $105 million.

Shareholder NZOG has offered to provide equity funding or other financial support of up to $25 million to Pike River on usual and reasonable 'arms' length terms.

"In summary, progress with the mine development is proceeding satisfactorily, coal prices are expected to improve significantly next year and there is an expectation that the New Zealand dollar will weaken against the US dollar over the next year.

"The company's share price has picked up in recent weeks to its current level of approximately $1.00. As we get closer to first coal production, risk continues to be removed from your investment."

Shares in Pike River closed down a cent to 99c today.

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