Lower forecast development in the next few months ahead of the introduction of the second ABM20 continuous mining machine and an upgrade to one of the current machines will also result in some interruptions to hydro production in the new year, chief executive Peter Whittall said.

“This will result in a couple of months of previously scheduled high production in May and June slipping into the following financial year,” he said.

“In addition, the revision takes into account the expected ramp-up of the hydro-mining system which, after several weeks of experience, we are now more familiar with.

“The mine plan has also been revised to fall within the parameters of the surface environmental consents.

“This has resulted in re-orienting one of the extraction areas to increase coal recovery, but adds some delay in reaching it.”

The new production forecast falls in the range of 320,000-360,000 tonnes of saleable coal to June 2011 with the most likely expectation somewhere in the middle of this range, Whittall said.

Meanwhile, Goldman Sachs views Pike River Coal as one of the most undervalued coal stocks in the world and expects the company’s success to depend on the pace of panel development rather than the effectiveness of hydro-mining.

In reiterating its “conviction buy” recommendation, the broker also used its own estimates of production which are “significantly below the company’s expectations”

While cutting coal underground with high-pressure water is not suitable in Australia, Pike’s plans for this kind of mining at its namesake mine in New Zealand are not without precedent in that country.

Dominant Kiwi coal producer Solid Energy uses hydro-mining at its Spring Creek mine where the long-term goal of 970,000 tonnes per annum of production seems out of reach.

The best result so far was 533,000t for the recent financial year.

But Goldman noted that hydro-mining “generally operates effectively” at Spring Creek, and blamed delays in mine planning and development for failures to meet scheduled production.

“We are not aware of any issue that has even been specifically attributed to the performance of the hydro miners,” Goldman said in a recent report.

Yet if the broker is correct, Pike will not experience the same development hold-ups because of its extensive program of in-seam drilling.

“PRC intends in-seam drilling to be conducted at least six months in advance of future roadway development and 12 months ahead of hydro mining,” Goldman said.

“We understand that in-seam drilling is not used at Spring Creek or any other mine in New Zealand.”

On the basis that Pike reaches its goal of 1 million tonnes per annum of coking coal production for the 2011-12 financial year, Goldman said Pike “would be the cheapest coal stock globally with valuation metrics 60-70 per cent below the global peer average”

At about 600,000tpa production for the 2011-12 financial year, Goldman said Pike would still be priced broadly in line with the peer average.

But the broker is forecasting a rate of 800,000tpa in the 2011-12 financial year – to deliver an adjusted net profit after tax of $NZ79.9 million at an average coking coal price of $US218/t.

Pike has already started hydro-mining its first panel and this is scheduled to be finished in December.

Goldman expects a positive news flow around these developments.

“We believe it is likely the market will take further comfort from this progress given that hydro mining will ultimately extract [around] 70 per cent of PRC’s coal over the life of the mine and successful execution will provide PRC with much-needed cash flow,” Goldman said.

Development costs led Pike to report a $NZ39 million loss for the 2010 financial year while long-serving managing director Gordon Ward was replaced by Peter Whittall last month.

Goldman has kept its 12-month price target of $1.50 per Pike share.

Pike shares closed down 6c to 83c in morning trade.