The company intends to make an equity issue of ordinary shares to raise the funds and has signed a binding agreement with its major shareholder, New Zealand Oil & Gas, to subscribe to a new convertible bond to refinance the existing $US28.9 million bond facility, conditional on shareholder approvals.

The new bonds will mature in March 2012 and have the same conversion price as existing bonds ($NZ1.24 per share when converted at an exchange rate of US70c).

Pike River has also granted a two-year option to NZOG to purchase Pike River coking coal at market prices negotiated annually.

The maximum volumes would be the currently uncontracted coal quantities until the end of March 2013 and up to 30% of annual coal production for the remainder of the Pike River mine life.

The new contract will not impact on existing contracts with Indian and Japanese customers.

The new convertible bond and the coal contract option are each conditional on successful completion of the equity issue and approval by Pike River shareholders.

All conditions must be satisfied or waived by the end of June. If the bond facility and coal contract option do not proceed, a $NZ1.2 million break fee must be paid to NZOG.

Pike River plans to use the funds to tide it over until the mine is up and running, as well as giving it a $NZ20 million cash buffer to ensure additional operational flexibility.

Hydro-monitor mining using high-pressure water to cut coal is the main mining technique Pike River will use and that is scheduled to be underway in the July-September quarter 2010.

The mine is expected to produce 1 million tonnes per annum when in full production.

“The independent directors have carefully weighed up the merits of NZOG's funding proposal and compared it to market alternatives,” Pike River chairman John Dow said.

“There are a number of advantages with the terms of the new convertible bond including a much better conversion price than alternatives thus minimising equity dilution, no production condition, slightly lower interest at 10 per cent and no establishment fees.

“In our view this adequately compensates Pike River for the grant of the coal contract option."

Gujarat NRE has also agreed to support a Pike River rights issue at a 7.55% interest, subject to such an issue being fully underwritten.

NZOG has agreed to provide interim funding of up to $NZ15 million to Pike River on commercial terms, to cover funding during the rights issue offer period.

Pike River recorded a $NZ14.1 million loss for the six months to December 31, 2009.

Pike River shares were trading down 6.16% in late morning trade today at 68.5c.