Deal Talk Sees Shares at High

By WOOD, Alan

Pike River Coal (PRC) shares have hit a record on expectations of a new top benchmark for coking coal prices.

PRC shares yesterday closed 7c higher at 117c, off an intra- day high of 118c, on 620,000 shares crossed. The previous high was 115.2c.

Market players say PRC and the New Zealand economy are benefiting from Asian expansion. Demand for goods from China and India — with a combined population of 2.5 billion — would help stimulate the economy despite threats from a US recession.

Christchurch’s Hamilton Hindin Greene client adviser James Smalley said PRC’s recent work to secure moving coal, via Solid Energy and Lyttelton Port of Christchurch, had encouraged investors and helped the share price.

McDouall Stuart Securities research head John Kidd said the share price reflected PRC’s position to take advantage of benchmark coal prices and its progress in tunnelling at its West Coast mine. The shares had also outperformed the main New Zealand Exchange indices in recent months.

PRC has nearly finished the pit-bottom stage of a 2.3km tunnel to a coal seam. It has targeted 200,000 tonnes of coal production in the year to June 30, 2009. Mining is to start in July.

PRC had committed to mining over a million tonnes of coal a year, but the high benchmark prices would probably pull back from the 2009- 10 year with more Australian capacity coming onstream, and Australian port investment, Kidd said.

The outcome of important talks between Australian miners and Japanese steel producers on a benchmark for prices between now and March 2009 was “pretty much imminent”, Kidd said. “There’s been plenty of rumour but there hasn’t been a final confirmation of price … we’re still waiting but really all indications are incredibly positive.”

Industry talk has spot prices for coking coal going up to $US330 ($NZ423) a tonne. The consensus is for the benchmark now being negotiated to settle at $US200-300 a tonne, up from the $US98 a tonne set for 2007-08.

Supplies of coking coal had dried up due to both recent flooding in Queensland, which had badly affected mining, and constraints at ports along Australia’s east coast, with China now a net importer rather than a net exporter.

Asian economies remained tigers, Kidd said. “The rate of growth in China still is so strong and the consumption so large … there’s still serious optimism about the level of import that China will require,” he said.

PRC chief executive Gordon Ward agreed the benchmark would be negotiated in the $US200-300 a tonne range in the short term. A recent McCloskey Group report had a rumour that BHP Billiton had agreed a price of either $US290/ t or $US305/t with the world’s biggest steel maker, Arcelor Mittal.

“If it comes in at about $US300 a tonne or something slightly below that, it’s going to be at markedly increased levels over previous record amounts,” Ward said.

PRC expected benchmark prices to fall over time, but New Zealand’s economy would benefit from a continued Asian steel sector boom and strong growth rates, he said.

Solid Energy South Island general manager Simon Doig said he understood BHP Billiton was in Tokyo yesterday talking to Nippon Steel on benchmark prices. “Nothing definitive has come out yet, but all signs are that prices will be very healthy.”

(c) 2008 Press, The; Christchurch, New Zealand. Provided by ProQuest Information and Learning. All rights Reserved.