Majority shareholder New Zealand Oil and Gas will come to the aid of Pike River Coal, with a $50 million equity issue and new bond announced this morning ahead of its interim result – a $14.1 million loss.
Majority shareholder New Zealand Oil and Gas will come to the aid of Pike River Coal, with a $50 million equity issue and new bond announced this morning ahead of its interim result – a $14.1 million loss.
The company flagged the capital raising in October last year, in a quarterly report to shareholders. Then, Pike River said it needed $20 million for working capital.
This morning the company said it seeks to raise $50 million through an equity issue of ordinary shares. Majority shareholder (with a 29.5% stake) New Zealand Oil and Gas will refinance its existing $US28.9 million ($42m) bond facility, if shareholders approve.
NZOG will subscribe to its 29.5% interest in a fully underwritten rights issue of NZ$50 million.
The new convertible bond will allow Pike River to repay its Liberty Harbor bond facility ($US27.5 million).
NZOG will also have a two-year option to buy Pike River coking coal at market prices (negotiated annually), up to the existing uncontracted amount of coal to March 2013 and up to 30% of annual production for the rest of the mine life.
Pike River said this would not affect existing coal contracts with Indian and Japanese customers and it would still be able to sell on the spot market.
The convertible bond and the coal contract will not occur without the other and if they do not proceed, PRC must pay a $1.2 million break fee.
The $50 million will be used to finish the company’s underground mine development until hydro-mining production is steady. It includes a $20 million cash buffer to ensure “operational flexibility” until then.
Pike River expects hydro mining (using high-pressure water to cut coal) to be underway in the July-September 2010 quarter.
NZOG support
New Zealand Oil and Gas has agreed to support a $50 million equity-raising subject to a rights issue being fully underwritten, which Pike River is considering.
It has also agreed to a $15 million fund on commercial terms to cover funding during the rights issue offer period (subject to conditions).
NZOG chief executive David Salisbury said the package benefited both companies and NZOG was a supportive investor, allowing Pike River to ramp up to full production during a period of very buoyant prices.
“As we have consistently stated, in due course Pike is likely to be less relevant to NZOG’s future as we build our core oil and gas exploration and production business.
“However, this package is value creating for NZOG and is a continuation of our current strategy of managing this investment in the interests of our shareholders.
“At this stage it is appropriate that NZOG continue to provide tangible backing to Pike as it moves to steady-state production from its coking coal mine, while we focus on our extensive production activities.”
Pike River chairman John Dow said there were a number of advantages with the terms of the new convertible bond, including a much better conversion price than alternatives, no production condition, slightly lower interest at 10% and no establishment fees.
“An independent expert report on the proposed new bond and coal contract option will be provided to Pike River shareholders in connection with the shareholder approvals to be sought in relation to those transactions at a special meeting expected to be held in the next two months”.
The new bonds will mature in March 2012 and have the same conversion price and other conversion rights as the existing bonds ($1.24 a share at an exchange rate of $US0.70 cents).
Indian customer Gujarat NRE has also agreed to support a Pike River rights issue at its 7.55% interest, subject to such issue being fully underwritten.
