Pike Coal to raise $100 mill

By NZPA

Wednesday 16th January 2008

West Coast mining company Pike River Coal has announced a $100 million equity and senior debt package to get its hard coking coal mine to production stage.

The company will launch a $60m rights issue to existing shareholders and issue $40m in convertible bonds to investment firm Liberty Harbor.

The package will replace an existing mandate with Westpac and add $35m to c over tunnelling, contingency and the transport contract costs.

Managing director Gordon Ward said the Westpac arrangement was less flexible and did not allow the company to draw down funds until after it had hit first coal .

That was due to happen in April but had been delayed two months to reduce risks.

Ward said tunnelling was now 85 percent complete and with the exception of the tunnelling costs, project costs had been tracking at or below projections.

All up, the development had cost around $252 million.

He said much of the risk had been taken out of the project in the last two months with the funding package, the arrival of the tunnel at the pit bottom area, and a long term transport contract with Solid Energy to transport coal to Lyttelton for export .

The Liberty Harbor deal removed "both the need for bridge finance until the proposed Westpac facility could be drawn and the requirement for a guarantee from NZOG which was not deemed appropriate or necessary given Pike River's status as a separately listed stand-alone entity".

The equity issue will offer shareholders one new share at $1.00 for every 3.561 shares held.

It will be completely underwritten by McDouall Stuart Group and the company's three principal shareholders, NZ Oil and Gas, Gujarat NRE and Saurashtra World Holdings Private Ltd.

They control 48.8% of the company and have indicated they will vote for the bond issue, which needs shareholder approval.

Liberty Harbor will be paid interest of 6.75% on the bonds quarterly in arrears during the three year term.

NZ Oil and Gas said it would be taking $17.5 million of the $60 million shares in the rights offer.

"This is a very positive sign for the company," Andrew McDouall from McDouall Stuart Securities.

"It's a big endorsement of the project [with] the involvement of Liberty Harbour, and I think the market will read it as such, that now there is no uncertainty in relation to the financing right through to the coal production and beyond."

The Pike River coal mine was floated in July , and is expected to produce 200,000 tonnes of hard coking coal in its first year, down from 240,000 tonnes in its IPO prospectus.

However, Ward said the lower forecast would have no impact on the 2010 forecast of one million tonnes.

He noted prices for hard coking coal were looking rosy, with indications the 2008 price would be above US$130 a tonne, compared with a prospectus forecast of US$101 per tonne.

Pike River shares fell 2.9% Wednesday to end at $1.00 in a broader market down 1.5%.

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