Nice article on Pike this morning
Nice article on pike this morning
Quote:
Coal price stokes Pike outlook
By JAMES WEIR - The Dominion Post | Thursday, 04 September 2008
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AdvertisementPike River Coal is expecting good prices of more than US$300 a tonne for its export coal, with India desperate for coal and China becoming a net importer for the first time this year.
Some brokers are forecasting a near doubling in Pike's share price in the coming year on the back of high world coal prices, even though the mine is still a month away from actually hitting its West Coast coalseam.
Pike River is in the "last dash" 120 metres of a 2.3km tunnel to its coalseam, with production expected to ramp up to one million tonnes a year from June.
The tunnel should be complete at the end of this month, Pike River chief executive Gordon Ward said.
Pike River's coalmine is about 100m below the surface in the remote Paparoa Range, about 50km northeast of Greymouth.
"It is tiger country," Mr Ward said.
The international price of coal is about three times the conservative level forecast in Pike's prospectus last year, which predicted prices would drift off to the mid US$70 range over time. Instead, world coal prices have boomed, with broker reports suggesting prices above US$300 (NZ$444) a tonne next year, up from US$150 in the past year.
On that basis, broker ABN Amro has just given Pike a 12-month target of $3.87 a share, Mr Ward told the Australasian Institute of Mining and Metallurgy mining conference in Wellington this week. "Potentially a healthy increase," he said.
Pike River shares have risen from $1 at the share float last year to $1.95 this week, the best performance of the NZX top 50.
World coal prices rocketed after Australian production in Queensland was affected by flooding and power stations in South Africa could not get enough coal.
But the long-run key is rapidly growing demand from China and India.
India, where most of Pike River's coal is destined, is hungry for coal and is expected to need an extra 15 million tonnes a year during the next five years.
China used to export coal, but for the first time this year is a net importer of both thermal and hard coking coal.
China has also just increased the "export tax" on thermal coal from 5 per cent to 10 per cent, matching the 10 per cent tax on coking coal, adding tension to supply and demand, Mr Ward said.
Pike expected "good [coal] prices for a number of years".
Contract prices are adjusted during annual price negotiations, taking the lead from BHP price agreements.
ABN Amro and Citigroup are now forecasting coal prices next year of more than US$300 a tonne, with spot prices as much as US$370 a tonne.
"The consensus from about six brokers is much higher prices forecast for much longer. Citigroup [alone] sees coal at US$250 a tonne in five years' time," Mr Ward said.
Bullish brokers said the fall in the Kiwi dollar from US80c to US70c was also a positive in New Zealand dollar income.
About a third of the Pike River mine's operating costs are for power, but Pike has locked in fixed price hedge contracts for about 18 months. Wholesale or spot market power prices skyrocketed this winter and Mr Ward admitted the company would be exposed to rising prices in future.
There was some potential for Pike to produce its own power from coalseam gas at the mine, which could reduce the overall power bill.
Export coal is exempt from the Government's emissions trading scheme