Pike River Coal has negotiated an unsecured loan facility of up to $25 million with its largest shareholder New Zealand Oil & Gas to provide short-term working capital while its mine on the West Coast ramps up.

The facility has establishment and other fees of $600,000, its interest rate is 13 per cent, and it is repayable in full by December 15. NZOG owns 29.4 per cent of Pike River Coal. Bank of New Zealand and NZOG have agreed to waivers of a potential covenant non-compliance on September 30.

NZOG has, as part of its waiver, requested a one-year extension to a coal option agreement, which shareholders have to approve. This option was put in place in April when NZOG provided a replacement convertible bond facility and gives NZOG the right to at any time until March 2013 to enter into an offtake agreement to purchase Pike coking coal at market prices to be negotiated annually. The maximum volume under the agreement is the currently uncontracted coal quantities for the first three years and up to 30 per cent of annual coal production for the remaining life of mine.

General manager of mines at Pike River Coal, Peter Whittall, said the money would be used to buy additional mining equipment which was critical to providing access for hydro-mining operations at a time while coal is being produced and stockpiled for shipment. Commissioning of the hydro-mining equipment started on September 20.

The company said two continuous miners bought from Waratah Engineering had not operated to expectations and had required ongoing modifications. Because of these problems, Pike River leased an ABM20 continuous mining machine for 12 months at a cost of $4 million, which began operating in August, and bought a second ABM20 at the cost of $5 million, which will arrive in January.

- NZPA