Higher Coal Prices Offset Increased Mine Development Budget

The Pike River mine is poised to benefit from an expected jump in hard coking coal prices. Market observers are currently expecting hard coking coal prices in the next Japanese Fiscal Year (commencing 1 April 2008), to settle at around US$115 per tonne, compared to the Pike River initial public offer (IPO) prospectus forecast of US$96 per tonne. Indications are that longer term coking coal prices from 2011 onwards will also lift due to ongoing strong international demand.


The Pike River Board of directors yesterday approved an $11 million (6%) increase in the mine development budget taking the approved budget from $174 million as set out in the IPO prospectus to $185 million (excluding the working capital budget of $33 million which is unchanged).


The budget increase relates mainly to tunnelling costs with nearly all other development costs currently being on or under budget. The tunnel is more than 60% complete and it now appears that the remaining rock will mostly be of a more expensive fractured rock class than expected in May 2007 when the IPO prospectus was issued. Although the tunnelling cost per metre is now expected to be higher, progress has been good with the tunnel being advanced from 764 metres on 20 May 2007 to 1,391 metres at 17 September 2007. The tunnel is expected to intersect first coal by the end of April 2008, one month later than previously forecast.


Overall, the benefit to Pike River of higher coal prices is expected to more than offset the increased mine development cost resulting in an increased project value since the IPO prospectus.


Tunnelling Progress

The critical path to first coal is determined by the time taken to complete the tunnel which will provide access to the coal deposit. Since the last project report on 31 July 2007, the Pike River tunnel has advanced 281 metres from 1,110 metres to 1,391 metres. This represents more than 60% completion of the 2,300 metre total length. Another rock conveyor extension was undertaken in August 2007 and was followed by two record advance days of 11.5m each. Progress has been maintained at a consistent rate, although rates of tunnel advance will vary from week to week depending on the rock type encountered, as is usual for projects of this nature.

Infrastructure

The coal preparation plant (CPP) contract signed with Brightwater-PEAT Limited in June 2007 is progressing with detailed plant design and hazard reviews being undertaken. This plant will receive all of the raw coal from the mine through a 10.6 kilometre coal slurry pipeline and ``wash’’ the coal to remove diluting rocks and deliver a clean, dewatered product into stockpiles for haulage to the port at Greymouth.

Construction of the CPP will commence in the final quarter of 2007 to be completed in time for processing of coal production of the mine.

The mine’s administrative and engineering buildings at the mine site have now been completed and occupied with the Pike River staff and project team moving from their previous offices in Greymouth

Equipment

The first piece of coal mining equipment, a roadheader manufactured by Waratah Engineering in Australia, is set for delivery to the mine site in November 2007. The machine was displayed at an international mining exhibition in Sydney, NSW in early September 2007 and attracted favourable attention from industry participants for its design for steep conditions and safe modes of roof support installation. The two continuous miners, also being manufactured by Waratah, are currently en route from initial fabrication in Germany to Waratah’s workshop in Newcastle, NSW with delivery to the mine site currently scheduled for February 2008.


The mine has also taken possession of its first two flameproof load haul dump machines in early September with two personnel transporters and a general purpose underground tractor on the docks in Christchurch awaiting delivery to site. These will be followed in the coming months with several more similar machines.