Grant Bradley 's Opinion

Aviation, tourism and energy writer for the Business Herald

Pike River receivership inevitable

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Herald deputy business editor Grant Bradley, who has visited the Pike River mine and covered the company for the Business Herald, on why today's receivership move by Pike River was inevitable.

Photo / NZPA
Photo / NZPA

In the end there was no option for Pike River Coal but receivership.

As it turned out the decades long dream of tapping into a huge seam of high value coal by the Pike River company effectively ended the day an explosion tore through the mine, killing 29 workers.

A series of further explosions and a coal fire has meant recovery of the workers' bodies has so far been impossible and made remote the prospects of resuming operations in the mine in the near future.

Pike River's chairman John Dow said the company was in a precarious position . That's an understatement. It is an operation with no foreseeable income, huge debts and heavy ongoing expenses.

One report put the cost of running the GAG jet engine used to put out the fire at $10,000 an hour, the company faces costs for redundant workers and repairing as yet unknown damage in the 2.3km-long tunnel. It also faced the prospect of high legal bills in the inquiries to come.

John Fisk of receivers PricewaterhouseCoopers will brief workers tomorrow and he hoped payments would be made before Christmas.

Despite this, the impact on the West Coast will be enormous.

Next to share in proceeds from any recoverable assets are the BNZ and Pike's cornerstone shareholder, New Zealand Oil & Gas which are owed around $45 million between them.

Soon after the initial explosion Pike River was granted breathing space until February on the debts but today said it was unlikely to be able to repay them by then.

As for shareholders in the company - which had a market capitalisation of $360 million on the day of the blast - their prospects of recovering anything on their investments are even less certain.

Pike River shares remain on suspension but when NZOG shares resumed trading after a two-day halt after the blast that company's value was sold off by the same amount of its 29.4 per cent Pike stake. This showed investors then rated the coal company as having little or no value and that was before the situation became even more dire with the stalled recovery and fire fighting effort.

Among those with shares are the Accident Compensation Corporation and NZ Super whose stakes totalled more than $20 million before the explosions.

While there is potentially $4 billion worth of recoverable coal in the mine nobody's going to get near it for a long time. It is uncertain whether the coal is on fire or at risk of igniting when the mine is reopened.

There are above ground assets that are intact - offices and a state of the art processing plant but their value was linked to mining operations.

Pike is now in the hands of receivers who face the tough job of overseeing the recovery effort, making the mine safe, dealing with inquiries and trying to preserve the value of the asset, the coal, at the same time.

NZOG says it remains supportive of any intentions to eventually reopen the mine but adds this could only happen after inquiries determine safe mining methods. And these inquiries could take years

The uncertainty hanging over the $280 million project means finding any buyer willing to take a punt in the meantime will be a challenge. Those with money tied up in Pike are finding that it's a bit like mining in the Paparoa Ranges - a brutal business.

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Grant Bradley

Aviation, tourism and energy writer for the Business Herald

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