New Zealand Oil&Gas bosses made an effort at their annual meeting to reassure shareholders about the company's relationship with delay-hit Pike River Coal.At the same time, they noted NZOG had been required to provide more support than expected for th
New Zealand Oil&Gas bosses made an effort at their annual meeting to reassure shareholders about the company's relationship with delay-hit Pike River Coal.
At the same time, they noted NZOG had been required to provide more support than expected for the West Coast mine development.
Last month, NZOG agreed to provide Pike River with a short term working capital facility of up to $25m, which has an interest rate of 13 percent and is to be repaid in December.
NZOG has also issued a $US29m ($NZ38.8m) convertible bond at an interest rate of 10 percent, repayable by March 2012. NZOG has the option to convert that to Pike River shares, and has the option of entering an offtake agreement to buy certain quantities of Pike River coking coal at market prices.
At NZOG's annual meeting today, chief executive David Salisbury said NZOG had contributed a total of $85m in equity to Pike River. Its 29.4 percent stake in Pike River's ordinary shares had a market value of about $120m. NZOG also had more than 17 million options.
The level of support being provided to Pike River was beyond what NZOG anticipated a year ago, Mr Salisbury said.
"However, NZOG has commissioned its own technical and management reviews and believes that, despite the delays in the mine reaching full production, the fundamental value of the project remains intact.
"While the Pike River mine is still to deliver on its potential, NZOG considers that it has a positive long term outlook."
NZOG chairman Tony Radford said the Pike River coal mine development had proved much more challenging than originally contemplated, "but that fact does not detract from the first class coking coal it produces and the value it will represent once it has reached steady state production".
NZOG's quarterly activities report for the three months to September, published today, said the new $25m working capital facility would sustain the final stages of the development of the Pike River underground mine and the acquisition of additional mining equipment.
At the same time it was protecting NZOG's significant investment in Pike River and providing a healthy return on investment, the report said.
On September 30 Pike River made the first call on the $25m facility. The first draw down of $3m included $600,000 in establishment and monitoring fees paid back to NZOG.
"The new arrangements are in the best interests of both companies. Pike River is now producing its highly valued coking coal and the first two shipments have been exported," NZOG said.
"However, with the underground mine roadways still being developed and hydro-mining equipment in the commissioning phase, Pike River currently requires further working capital."
NZOG also received $980,000 in interest payments on its Pike River convertible bond during the quarter.
