Solid Energy could pay up to $32.5m for Pike River

BUSINESSDESK: Solid Energy, the state-owned coal miner, has agreed to buy the Pike River Coal mine for $7.5 million but could pay a further $25m if the mine is commercially reopened.

Solid Energy completed due diligence, signing the full but conditional sale and purchase agreement with receivers to buy Pike River Coal.

The company will pay an initial payment of $2.5m today, followed by $1.25m on September 30, it said. The balance of the $7.5m will be paid on completion.

The future payment of $25m will be based on the level of coal extraction and rate at which the mine becomes fully operational.

If production at the mine exceeds 250,000 tonnes over the next 12 months or total aggregate extraction over any period reaches 1.25m tonnes, whichever happens first, Solid Energy will make payments based on the relevant level of coal extraction.

The Christchurch-based company has entered into an agreement with the government outlining the role each will play in recovering the bodies of the 29 miners who still remain trapped in the mine, following a series of explosions in 2009.

The explosions forced the closure of the operation, leading to a Royal Commission of Inquiry and NZX-listed Pike River Coal was pushed into receivership.

“After extensive work by our own technical team, including advice and review by international experts, Solid Energy has concluded that the only safe, feasible and credible option for recovering the men’s bodies will be as part of a future commercial mining operation," chief executive Don Elder said.

"This agreement commits Solid Energy to pursuing all reasonable steps to recover the men’s bodies as part of any commercial mining operations at Pike River, provided the company and the government consider this can be achieved safely, is technically feasible and financially credible," he said.

Energy and Resources Minister Phil Heatley said the government welcomes the sale.

"The sale, conditional on a number of mostly procedural matters including transfer of the mining permit, is a positive step towards determining the future of resource development at the mine," he said.

Solid Energy has been flagged for a partial sell-down in the government’s mixed ownership model, which is expected to kick off in the third quarter this year with MightyRiverPower.