Pike River Coal is confident $50 million it plans to raise through an equity issue will be the last time it looks for funding for its West Coast mine, as it pushes to reach a steady rate of hard coking coal production.
The equity issue was part of a group of measures announced today by the company, which expects to be producing one million tonnes annually in the year to June 2012. In the year to June 2011 it is budgeting for 700,000 to 800,000 tonnes.
Pike River expects to be using its main mining technique - high pressure water to cut coal - in the July to September quarter of this year.
Along with the equity raising, Pike River today announced an agreement for 29.5 percent shareholder NZ Oil & Gas to refinance Pike River's existing $US28.9m ($NZ40.1m) bond facility with Liberty Harbor.
NZOG would also be granted a two-year option to buy Pike river coking coal at market prices negotiated annually.
Maximum volumes under the option would be the currently uncontracted coal quantities for the period to March 2013 and up to 30 percent of annual coal production for the remainder of the Pike River mine life.
Asked if this was the last time the company would be looking for funding for the Pike River mine, chief executive Gordon Ward replied "certainly" and "absolutely".
The important thing to note was that the $50m of funding included a "very healthy" cash buffer of at least $20m, so if for any reason the ramp up to full production went a little bit slower than expected, Pike River would have sufficient cash to see it through.
NZOG's coal option, which that company could exercise on giving six months notice, provided the benefit of a long-term contract, Mr Ward said.
The perhaps much shorter term benefit of selling coal into the spot market had to be weighed up against the merits of having long term contracts, knowing the company had a buyer who would take the coal.
"That's why most coal producers sell most of their coal under long-term contract, so they might typically have 10 to 20 percent available for the spot market," Mr Ward said.
The benefits of the bond issue included avoiding any potential matters that could arise over a steady state production condition under the Liberty Harbor facility.
That condition could have been extended to June 30 under the Liberty Harbor facility, but in that case Pike River would have needed to be able to produce 800,000 tonnes of coal in the following year, Mr Ward said.
Pike River was "perfectly comfortable" that the mine would produce at annual rate above that level, but there was a ramp up period after hydro-mining got under way in the July to September quarter before hitting the steady state production rate of about 1m tonnes a year at the start of 2011.
The bond facility and coal contract option are conditional on approval by Pike shareholders.
Last week Pike River sent its first export shipment of 20,000 tonnes of premium hard coking coal to India.
The value of the shipment was about $3.4m and Pike expected to receive those funds in next few days. The next export shipment would be in the April to June quarter, Mr Ward said.
NZOG said it had agreed to subscribe for its 29.5 percent interest in the equity issue, subject to any regulatory restraints.
Until the rights issue proceeds were received, NZOG had agreed to provide interim funding to Pike on commercial terms of up to $15m, that may be drawn on as necessary to cover funding requirements.
NZOG chief executive David Salisbury said the Pike River package was value creating for NZOG and was a continuation of NZOG's strategy of managing the Pike River investment in the interests of its shareholders.
Pike also today reported a loss of $14.1m for the six months to December, compared to a loss of $9.6m a year earlier.
The result reflected the fact the mine was in a development phase, the company said.
