Key Points:

Pike River coal has finally hit its target. Tunnellers struck the Brunner seam of hard coking coal yesterday afternoon after more than two years of tunnelling and more than a decade in planning.

Coal will be extracted immediately but will be ramped up in January when a slurry pipeline will carry it to the production plant several kilometres away from the mine in the Paparoa Ranges, northeast of Greymouth.

Pike River is scheduled to produce its first 100,000 tonnes by March 2009 and another 100,000 tonnes by June 2009. When hydro mining is fully underway it will produce around a million tonnes annually for a scheduled 18 years.

The company has broken through as commodity prices are hit by global economic turmoil and coal prices show signs of retreating from historic highs.

However, international annual benchmark contract prices for hard coking coal rose 200 per cent six months ago, enabling Pike River to settle first coal sales to March 2009 at US$300 ($494) a tonne.

This price compares with the original price forecast in the prospectus 18 months ago of US$98 a tonne.

Fixed supply contracts were already in place for Japan and India and strong interest from other coke and steel-producers, the company said.

Pike River chief executive Gordon Ward said that while global financial difficulties were likely to have some negative impact on next year's steel production in some regions and therefore potentially on coal prices, it would take time for that to be determined.

An offsetting factor was the fall in the New Zealand dollar against the US dollar, which helped export prices.

"Whilst tunnelling has taken longer to break through because of poor rock conditions in much of the last 300 metres, we have now very much de-risked the development and can begin operating as a coal mine."

The company's NZX listing was delayed and the project has been slowed down by more difficult conditions than expected. The estimated $230 million cost of the tunnel includes full use of contingency funding.

Hard coking coal is used to fire steel furnaces and its price is vulnerable to the economic slowdown spreading around the world.

Pike River was establishing a new and valuable source of high quality coking coal for the world's steel market.

Pike River Coal had reported a $1.14 million loss for the year to the end of June, which it said reflected the development phase and related one-off costs.

Pike River shares were up 7c to 136c at the close yesterday.