Friday, December 3, 2010

Pike River Coal Ltd: What's it Worth?

What is Pike River Coal Ltd [PRC.NZX] worth now after 4 explosions thus far have ripped apart the mine and trapped the bodies of 29 miners in its tunnels?

It is hard to say because investigators have yet to have a look at what damage might have been done and if the fire that is now raging in the coal seam can be put out and how much it would cost to get the mine back into production again.

Coal mine fires are extremely hard to extinguish and can burn for very long periods so Pike River may never go back into production. If the fire can be contained it will cost many 10s of millions to repair the damage. At present the company is trying to fashion some kind of remedial fire dampening to allow rescuers into the mine.

With billions of dollars of coal in the ground left to extract there is clearly an incentive to restart this mine but what is PRC now worth considering all these variables and the extra cost of getting the mine back into production?

The market has marked the share price down to around 20c per share with large bids down below the 10c mark. See current market depth below:


Buyers

Buy Quantity

Prices

Prices

Sell Quantity

Sellers

2

10,000

$0.190

$0.190

12,211

2

1

20,000

$0.160

$0.200

197,636

1

1

21,410

$0.150

$0.210

4,204

1

1

2,000

$0.100

$0.220

7,500

1

1

40,000

$0.090

$0.250

10,000

1

1

15,000

$0.080

$0.260

5,145

2

1

70,000

$0.060

$0.270

35,644

2

4

46,000

$0.050

$0.280

27,207

1

5

487,200

$0.020

$0.290

9,000

1

2

500,000

$0.010

$0.300

15,000

2

19

1,211,610



323,547

14




There were actually accidental trades in PRC shares made yesterday, ironically after a 2 minute halt in trading on the NZX to mark the 2 minute silence for the Pike River 29 as New Zealand remembered them and these trades were passed in at 20c each.

The market last traded PRC shares at 88c on November 22 when the shares were put into a trading halt but clearly Mr Market still sees some value in the company and are cautiously optimistic that the coal fire can be extinguished.

Perhaps a better indication of what value the market puts on PRC shares is in the trading of 30% holder in PRC NZ Oil & Gas Ltd [NZO.NZX]. After a trading halt was lifted on NZO shares the share price dropped by about 30%, (see chart below) effectively placing zero value on its investment in PRC and the NZO has been trading in a range of 90-94c since trading in that company recommenced on November 23.



It is still unclear as to just when PRC shares will recommence trading but investors will need to wait until CEO Peter Whittall and his men are able to take a closer look at the damage to the mine and assess the possible costs involved.

If the fire is able to be contained then clearly there will be much motivation to get the mine back into working order because of the large coal deposits yet to be mined. Whether PRC is able to get financing to allow their business to continue is another story.

It will provide opportunities for foreign mining companies to buy this company for a deep discount and for prospective smaller investors to take a smaller punt in the hope the mine goes back into production.

Lets hope they do.


Related

Pike River Facebook Supporters Page

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