West Coast Coal Mine Float Set
New Zealand Oil and Gas (NZOG) plans a $30 million float of shares in Pike River Coal Company next March to help finance the $130m West Coast coal mine.
The small explorer announced a commitment to the underground mine yesterday and its partnering with Indian cokemaker Saurashtra Fuels Private for the development funding. NZOG owns 73 per cent of Pike River Coal Company (PRCC).
NZOG’s shares yesterday rose 4c to close at 103, on almost 1m shares traded, in reaction to the news.
Saurashtra will inject $17m for a 10.6% stake in PRCC, implying a total company value of $160.4m. It will also buy at least 150,000 tonnes a year of the low-ash coking coal at market prices for the mine’s life.
The mine will be New Zealand’s second biggest producing up to 1.2m tonnes a year. The biggest is Stockton, north of Westport, producing 2m tonnes.
NZOG has said the mine could export $1.2 billion tonnes of coal over 20 years.
A Standard and Poor’s report on the global coal industry said coking coal prices had spiked recently because of Chinese demand. Further price rises were forecast for next year, the Australian Bureau of Agricultural and Resource Economics said.
In the short-term, the pressure was still upward on prices, but they should ease in the medium term as supply rose sharply.
Two conditions of Saurashtra’s investment is that PRCC raises another $23m in equity, and public offer of PRCC shares is made by next March.
NZOG is proposing to provide PRCC with $23m in equity, with a first instalment of $6.9m and a commitment of up to $16.1m underwriting the public share offer. If the offer is not completed by December 20, NZOG may have to pay a second instalment of $16.1m at that time.
NZOG and Saurashtra’s equity contributions are based on a value of 318c a PRCC share. Their holdings will be adjusted if the public issue price is less than 318c.
The price of the shares would be set by a book-build.
NZOG general manager Gordon Ward said the development would create about 150 jobs in the Greymouth district.
Total funding for the development was about $130m including working capital. About $60m of that would be debt.
The public offer of PRCC shares would be about $30m and, if strong market demand existed, PRCC shareholders might sell part of their stake. “At this stage, a significant portion of any shares offered to the public will be reserved for NZOG shareholders,” the company said.
Ward said NZOG’s stake in PRCC would be at least 50% through the development stage.
PRCC was at the final stage of negotiations with the Port of Lyttelton and the port of Taranaki on which port to export the coal from.
Adrian Vance, a partner of Christchurch broker Hamilton, Hindin, Green, said those most interested in the shares were NZOG shareholders and a good number of investors had bought NZOG shares to have access to PRCC. Other interest would depend on the numbers in the prospectus and the price of the shares.
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