coking coal price increase, page-5

Lets hope mate..

Its depressing to see the market up so much and Pike either moves down or goes no where..

What a terrible float.. This has dented my confidence to invest in other floats to see this sort of stuff happen.. I know it does happen but when you read broker reports like the below one that I have attached, and then see the share price do the opposite, it really leaves me scratching my head!

"Chris Lee
Managing Director
Projects Resources Limited

After so many false starts that I have lost count, the prospectus for Pike River Coal's IPO has been published, preceded by a presentation in Wellington for analysts, brokers and other intermediaries.

The prospectus is an enormous document, meeting the stringent disclosure requirements of both Australia and New Zealand's securities regulators.

As such it is self-defeating, being so weighty that very few investors will have the confidence to try to read it.

So it is a pity the presentation was not on video as it was, in contrast to the prospectus, an excellent briefing on a project that will have West Coasters salivating, as they look on the birth of New Zealand's first listed coal company for 28 years.

Pike River has recruited genuinely experienced and expert staff, from Australia, South Africa, and Germany, as well as New Zealand, to manage an operation that expects to produce at least a million tons of high quality coking coal, for at least 18 years.

The cost of producing the coal will be somewhat less that NZ$90 per tonne, and coal is currently worth around $145 a tonne, a figure enlarged in recent years because of Chinese, Brazilian and Indian demand for steel, but diminished by the soaring value of the NZ Dollar.

If the dollar was back at 60c US, the value of the coal would be nearer $170 a tonne.

The gross margin for the first year's real production (2008 - 09) could therefore be around $50 - $60 million at current figures, and maybe, nearer $80 - $90 million if the coal price was steady but the exchange rate fell to US 60c to the NZ Dollar.

There are too many "ifs" already in this argument, a fact accepted by PRC and acknowledged by the absence of its forecasts.

What is undeniable, however, is that if all goes roughly to plan, there will be a real margin created by producing a uniquely high value coking coal with relatively low mining costs, thanks to the availability of water, rainfall in the area of the mine being measured in metres, and darned nearly kilometres.

The coal will be flushed out by high pressure hoses from a robot-operated space-age car, and will be carried by water and gravity to an area that allows it eventually to be carted off to Greymouth's port, barged to New Plymouth and then exported, mostly to India, where contracts already are in place.

The real margin, given all the unknowns, may vary greatly but by my calculations should enable a dividend of between five and fifteen cents per share, given the dividend policy discussed, which might be around 50 - 60% of the cash generated each year.

A five cent dividend would make the shares expensive at $1.00 (the offer price), a 15 cent dividend would make the share cheap at $1.50.

All of this is encouraging but the real excitement for investors should be in the quality and experience of the project managers.

There is genuine experience, knowledge and industry mana in their people, attributes PRC could not have attracted unless this project had the X-factor.

The issue will seek to raise a minimum of $65 million (maximum $85 million) which, combined with a roughly $80m bank loan, will give PRC the money to complete the tunnel (2.3 ks, so far 0.7 k reached) and mine coal, eventually generating cash and surpluses.

Tunneling progress has been slowed not by hard rock but by soft rock but sample drilling suggests conditions will improve, allowing the tunnel to be concluded by March next year.

The shares are now available, with a special pool for NZ Oil & Gas shareholders, NZOG being the vendor of some of its shares.

NZOG holders can apply for 3,000 PRC shares, or a number equal to one eighth of their NZOG holding, whichever is the greater.

In my opinion, they should take up this right. We will want all NZOG holders to send their rights form and cheque to us, for batching and stamping.

We have an allocation and may get a further helping, depending on the residue, if any, from the pool offered to NZOG holders.

Coal mining is a risky exercise, so this is not an issue for income investors, nor is it suitable for those who cannot afford risk.

But my summary is this:-

We have in PRC a company with a world-class, unique product, which sells at a premium; we have excellent project managers; we have a rapidly growing demand for steel; we have potential margins and therefore potential dividends, that could result in rapid share price rises.

If there are no disasters - geological, mining, management, or price swings - investors may be rewarded well for the risk.

The prospectuses requested by clients, along with confirmation of firm allocations, should be out this week. "