An article by Gary Sheeran in the NZ newspaper Sunday Star Times makes interesting reading. It is possibly the article referred to by an earlier poster yesterday but when I tried the link I could not get it.
I will copy and paste here for others to read.
Pike River sale talk before coal emerges
By GARRY SHEERAN - Sunday Star Times | Monday, 11 August 2008
Fairfax Media
The Pike River share price surged 133% from $1.05 in January to $2.45 before easing in July, but it remains the top performing stock on the NZX in 2008. PRC 1.850 0.000 (+0.00%) Pike River Coal Limited Ordinary Shares As at 12:29 pm, 12 Aug (20 min delay) Related Links NZ Oil and Gas could sell its high- flying coal-mining offshoot Pike River Coal as early as next year, says McDouall Stuart analyst John Kidd.
The Pike River share price surged 133% from $1.05 in January to $2.45 before easing in July, but it remains the top performing stock on the NZX in 2008.
It has also been one of three significant drivers of the NZOG share price, along with the high price of oil and the start of production at the Kupe oil field, in which NZOG has a 15% stake.
"But coal is not NZOG's business, it is oil and gas," Kidd said. The sale of the oil exploration and production company's 31% stake in Pike River was just a matter of time, he said.
And with global coal prices high and likely to remain so, that could come sooner rather than later.
NZ Oil & Gas public affairs manager Chris Roberts said the company was not involved in any sales process now, but when that time came "we would want to maximise the value of Pike River, which is still being de-risked".
Pike River Coal expects to drill through to the coal seam in the Paparoa Ranges in Westland within weeks, and start producing coal by the end of the month.
But Kidd said production would really kick in around mid next year when hydro miners would ramp up production significantly. The high-quality coking coal will be shipped to Asia via Lyttelton.
"At that time the coal mine will be fully operational, all risks presumably overcome, and its value will start to become evident to prospective buyers."
He said at that stage the Pike River business could be valued on multiples of earnings rather than on a discounted cash flow basis as at present, and allow a realistic transaction value to emerge.
Prospective buyers of Pike River would be Australian mining concerns, including BHP and Xstrata. Kidd said those two companies had been bidding against each other in recent transactions and good prices were being paid for coal mines.
One of the factors which has helped drive coal prices up this year has been shipping constraints on the Australian eastern seaboard. Coal ships were lined up 25-deep outside Dalrymple in Queensland, the largest coal port in the world.
Other prospective buyers for Pike River were Chinese and Indian coal importers who wanted to secure supply chains. There are two Indian cornerstone shareholders on the Pike River Coal register.
Kidd said recent coal mining deals in Australia indicated a value for Pike River Coal could reflect a share price north of $3. The share was trading at $1.84.
PRC Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
