Pike River Mine Inquiry: Day 8

by Rebecca Macfie / 21 July, 2011
The Inquiry heard about high management turnover, financial pressure and the displeasure of its major shareholder.

In 2006, mining consultants Behre Dolbear Australia told New Zealand Oil and Gas, the promoters of the Pike River mine project, that the mine was “not considered bankable” because of uncertainties over ground conditions and geology.

A year later, the same consultants publicly advised potential investors in Pike River Coal’s public float that the project was “well-founded” and “technically feasible”. It advised that Pike’s geotechnical data was “adequate”, and that its production targets and cost estimates were “reasonable”.

By May 2010, six months before the explosion that took the lives of 29 men, BDA was again telling NZOG – by then Pike’s 29% shareholder – that the “structural complexity of the project was still largely undefined”.

Listing the mine’s well-publicised difficulties, including massive delays, cost blowouts and a collapse in its ventilation shaft, BDA said Pike’s senior management had failed to deliver. One of its suggestions to improve the mine’s performance was to get rid of the current mangers and bring in an outside contractor to mine the coal.

Three months later, NZOG chief executive David Salisbury and chairman Tony Radford told Pike chairman John Dow that they had lost confidence in the mining company’s two top managers – then-chief executive Gordon Ward and then-general manager of mines Peter Whittall.

A few weeks later Ward was gone, but Whittall – who had been in charge of mine development since 2005 – was promoted to the chief executive role.

Under cross examination by Simon Mount, counsel assisting the royal commission, Whittall denied any knowledge of BDA’s bleak 2006 assessment of the project. He also expressed surprise at the written evidence from Salisbury stating that NZOG had lost confidence in him by last August. Salisbury had congratulated him “roundly” when he assumed the CEO role, he said.

Likewise, he contested BDA’s observation that there was an “air of despondency or resignation” at the Pike site last year, which the consultants speculated may have been a result of equipment failures and a sense that efforts to fix the unreliable machines were “largely wasted”. Whittall agreed the failure of critical mining machinery was “depressing”, but the site was otherwise a “buoyant and driven” place to work.

In its 2010 report, BDA noted that Pike’s board and management seemed to be more focused on the financial market than the mine, and a great deal of effort was spent on promoting the project to the broking community. Whittall responded that it was true there was considerable time spent talking to the market because “we’re a small listed company”. Capital raising efforts often prevented him from making scheduled visits to the mine site, but he considered it his role to ensure that this did not distract the operational staff from doing their jobs.

Mount referred Whittall to evidence that in September 2010, NZOG was advised that Pike was about to run out of cash, with an expected shortfall of $20-24 million. One reason was that one of its shareholders – an Indian coking coal company – had been sent a shipment of coal from Pike that failed to meet specifications, and was refusing to take any further below-spec coal in the short term. This meant Pike’s next shipment of coal would be delayed until December 2010, contributing to the financial shortfall. Pike was planning a capital raising but expected to run out of cash before that was done.

Asked to comment, Whittall said he had never been told the Indians had refused coal because it did not meet specifications.

In earlier evidence yesterday, Whittall revealed that in Pike’s two years as a coal mine, it had had six different mine managers – a position that is required by statute and must be filled by a person with specific mining qualifications. It had also had six different technical services managers since 2005.

It was also noted that Ward, who drove the mine project on behalf of NZOG in the early years and was Pike’s chief executive from the mid-2000s until September 2010, had no previous underground coal mining experience.

Similarly, no directors on the Pike River Coal board at the time the project began in 2005 had any direct experience of underground coal mining, although one – Graeme Duncan – was a director of Minarco, one of the specialist consultants used by Pike.

Whittall spent much of the day reading evidence that described the layout and hardware at Pike, including the workings of its hydro-mining and in-seam drilling rigs, real-time gas sensing technology, ventilation fans, and emergency communications. Cross-examination will continue today.

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