PIKE RIVER COAL LIMITED Half Year Report for the Six Months Ended 31 December 2007 PIKE RIVER COAL LIMITED Half Year Report for the Six Months Ended 31 December 2007

PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007 PIKE RIVER COAL LIMITED Half Year Report for the six months ended 31 December 2007

MOVING TO PRODUCTION

i CONTENTS 1 Highlights

1 Directors’ Declaration

2 Managing Director’s Letter

3 Operations Report

13 Condensed Interim Financial Statements for the six months ended 31 December 2007

Back Cover Corporate Directory

Cover Illustration: Road Header being delivered – January 2008

ii PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007 Highlights AS at 17 march 2008

FINANCIAL • Initial Public Offering raises $85 million in July 2007 • Rights Issue and Convertible Bond placement raises $100 million in March 2008

DEVELOPMENT • $52 million invested in the mine development • Tunnel 87% complete • Pit bottom well underway • Mining equipment delivered to site • Coal preparation plant 65% complete

OPERATIONAL • New transport contract reduces costs by $6 million per annum for forecast life of mine

DIRECTORS’ DECLARATION In the opinion of the Directors of Pike River Coal Limited (“the Company” or “Pike River”): (1) the interim condensed financial statements and accompanying notes, set out in the relevant pages of the Half Year Report comply with the accounting standards issued by the J A S Dow New Zealand Institute of Chartered Accountants; and Director (2) the interim condensed financial statements for the six months 17 March 2008 to 31 December 2007 and accompanying notes give a true and fair view of the financial position and performance of the Company; and (3) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. G A Ward Director The Half Year Report of Pike River is approved for and on behalf of 17 March 2008 the Board.

1 MANAGING DIRECTOR’S LETTER

17 March 2008

Dear Pike River Investor,

It is pleasing to report to you that the Pike River premium hard coking coal mine development is on track for first coal production in July 2008 and that the Company’s funding arrangements have been successfully completed. Several important milestones were achieved in the six months to 31 December 2007. Highlights included the successful initial public offering (IPO) in July 2007, completion of more than 80% of the tunnel, key infrastructure either completed or progressing to schedule and entry into a new improved rail-based coal transport contract to the export port.

Subsequent to the interim reporting date, Pike River has completed a $100 million (approximate) funding package which will fully fund operations until steady state production from hydro mining is achieved. A successful $60 million rights issue with 73% of shareholders taking up entitlements and a US$30 million (circa NZ$37.4 million) convertible bond issue, were completed on 12 March 2008.

Pike River is making good progress with mine construction and development. Whilst nearly all of the various development activities are within the IPO budget, the tunnel has encountered more difficult ground conditions than expected. These factors have contributed to most of an 11% increase in the project budget and a two month delay to the first coal date signalled at the time of the IPO. Some cost savings have been achieved through the new rail-based transport system to Lyttelton. The transport contract will deliver cost savings of approximately $6 million per annum over the forecast mine life when compared to the prior transport arrangements to New Plymouth.

Pike River is committed to developing the new mine in accordance with best environmental practice and we are pleased with our performance to date.

The Company’s result for the reporting period was a deficit of $1.58 million which reflects the pre-production status of the project. This result largely relates to expensing one-off staff recruitment, relocation and related costs, together with a $1.67 million cost related to termination of the prior coal transport arrangements.

All Pike River coal is a high quality product ultimately used in steel manufacturing. First coal production from the Pike River mine will coincide with a surge in hard coking coal prices, with market observers predicting at least US$200 per tonne for the year commencing 1 April 2008, setting the scene for a favourable market re-rating of the Company and its prospects.

Gordon Ward Chief Executive and Managing Director

2 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007 OPERATIONS REPORT

1.0 OVERVIEW months whilst more than 500 metres of roadways are excavated in the stone to house the “pit Pike River is developing an underground mine in the bottom” coal handling facilities. Once pit bottom Grey Valley on the West Coast of the South Island, is completed (currently 60% complete) and the approximately 50 kilometres northeast of Greymouth. tunnel advanced to the Hawera fault at 2,050 The Pike River coalfield is New Zealand’s largest metres, the remainder of the tunnel will be driven known deposit of hard coking coal. Pike River’s mine with Pike River’s roadheader until the coal seam plan currently assumes saleable coal production of is intersected at 2,300 metres. approximately 17.6 million tonnes, however this has the potential to increase as further reserves are assessed, More heavily fractured ground encountered in the mine reaches full production and a full assessment the tunnel than expected, led the Pike River can be made of the deeper Paparoa coal seam. Board to increase the mine development budget in September 2007 by $11 million to $185 The mine will produce a premium quality hard coking million (excluding working capital requirements coal for use in the steel making process. All Pike and contingency). Following reinstatement of a River coal is expected to be exported to international contingency allowance of $11 million the total coke makers and steel mills. Initial coal production budget now stands at $196 million, with a rates build from low rates whilst the mine is being further $34 million required for working capital. established over the first six months to achieve a forecast 200,000 tonnes in the year ended 30 June Since the IPO there has been a consistent 2009. In mid 2009 hydro-monitor mining (a high improvement in the rate of tunnel advance, a pressure water cutting system) will be implemented to record advance achieved during October 2007, ramp production up to a forecast 1,000,000 tonnes for and at 1,993 metres the tunnel is now 87% the year ended 30 June 2010. complete.

(b) Construction of mine pit bottom facilities and coal slurry pipeline for transport of coal to 2.0 KEY MINE DEVELOPMENT STEPS the coal preparation plant Construction of the mine pit bottom facilities Pike River has made very good progress with the mine commenced in mid December 2007, following development in the six months ended 31 December completion of detailed planning. The pit bottom 2007 and in the period to 17 March 2008. The area has been split into two sections, with remaining key steps for Pike River to achieve first coal excavations now to be located on both the eastern production are: and western sides of the Hawera fault. The pit (a) Development of a mine tunnel to reach bottom to the east of Hawera is currently being the coal seam excavated in the hard rock and is the site for the A 2,300 metre tunnel being driven in stone coal crushing plant and slurry sump, the fluming will provide access to the underground coking water sump and the electrical installations. The coal reserves. The tunnel was at 1,993 metres pit bottom area west of Hawera in the coal at close of business on 17 March 2008 being measures will accommodate the ventilation shaft advanced more than 1,000 metres since 30 and the two main fans, the raw coal slurry ponds, June 2007. Having reached the area adjacent the hydro-monitor pump station and a large water to the Hawera fault in February 2008, the tunnel storage facility. advance is now halted for approximately two

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4 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

The holes also showed that the pit bottom on the western side will require more rock excavation than previously modelled. Accordingly, a slightly more conservative ramp-up in production during the first 12 months of 200,000 tonnes has been determined by Pike River management. This compares to 240,000 tonnes forecast in the IPO Offer Document. There is no impact on annual production rates when hydro operations are underway in the year commencing July 2009. In context a 40,000 tonne reduction translates to about half a month’s production when hydro mining operations are in progress.

Recent drilling has confirmed ground conditions at the planned location of the ventilation shaft where site works are underway. Based on that information Pike River had decided the ventilation shaft will be constructed by the more expensive raise-bore method rather than by using an Alimak. The Alimak system is used to excavate the ventilation shaft from the base up to the surface by installing a track system up the wall of the shaft from which workers drill and blast the roof of the shaft. This system relies on good ground conditions and carries higher inherent safety and programming risks. Drillsite nestled in native bush – February 2008 By comparison, the raise-bore method requires a pilot hole to be drilled from the surface to an underground roadway. Large drill pipes are then Once the pit bottom on the eastern side is largely lowered down the pilot hole and a reaming head completed and the tunnel traverses the Hawera attached. In the case of the Pike River ventilation fault in May 2008, the tunnel may be deemed to shaft, this head will be 4.15 metres in diameter. be a coal mine due to the potential presence of A special raise boring unit on the surface then methane gas. All non flame proof equipment will raises the rotating head and effectively reams be removed from the tunnel and replaced with out the borehole to the full diameter. Where purpose built equipment for use in a coal mine. additional support is required for the sidewalls, a Pike River successfully completed eight more deck is lowered down the shaft for access. While surface boreholes in the pit bottom areas adjacent also on the critical path, the raise-bore method to the Hawera fault over the past nine months. allows a lot more pre-work to be done in parallel These holes have provided further information to the tunnel driveage and therefore greatly about conditions in the area and have verified reduces the amount of overall time to complete Pike River’s geological model for the position of the shaft. The raise-bore method has required the fault and for the location and orientation of allocation of $5 million from the $11 million the coal seam to the west of the fault. project contingency.

5 Once the ventilation shaft is completed an mine to a coal preparation plant commenced in exhausting fan will be located over the shaft to November 2007 and will connect the pit bottom draw air from the mine. Until this is established coal slurry pumps with that plant. The majority of by the end of 2008, mine development and the pipeline installation up to the tunnel entrance, production will continue to be ventilated via the is on track to be completed by April 2008. The tunnel under the current ventilation system. remainder of the pipeline installation within the tunnel will be completed prior to commissioning Installation of a 10.6 kilometre coal slurry of the pit bottom coal handling facilities. pipeline to be used to transport coal from the

Coal slurry pipeline – January 2008

Coal preparation plant and stockpile conveyor under construction – March 2008

6 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

(c) Construction of a coal preparation plant to at peak production in 2009, the mine will employ prepare coal for export approximately 150 staff. A coal preparation plant is being constructed (e) Construction of road headers, continuous under a $19.2 million design and build contract miners and hydraulic mining equipment for coal (within the IPO budget) with Brightwater-PEAT extraction Limited. This plant will receive all of the raw coal The primary roadway development equipment from the mine through the coal slurry pipeline of a road header and two continuous miners and “wash” the coal to remove diluting rocks and will be leased and mobilised over the first six deliver a clean, dewatered product into stockpiles. months after the completion of the mine tunnel. Coal will be recovered from the stockpiles by front The first major piece of mining equipment, the end loader and loaded into trucks for transport to roadheader, was delivered to the mine site in a new train loading facility yet to be constructed. early January 2008. The roadheader frame was The coal preparation plant is approximately 65% built in Germany within budget and delivered complete and is expected to be finished by May into Australia for completion and customisation 2008. work to meet New Zealand/Australian mining standards. The two continuous miners which (d) Recruitment of mine production personnel to are undergoing the same construction route, are operate the Mine approximately 70% complete and are scheduled Pike River has employed a highly experienced for delivery to the mine by mid 2008. senior mine management team with extensive international mining experience totalling more The hydraulic mining equipment is not needed than 150 years in combined coal mining until 2009 and will be purchased for delivery and experience. Total staff on the project is now 27 commission prior to commencement of hydraulic and approximately a further 45 employees will be monitoring. recruited in time for first coal production. Once

2006 2007 2008 2009 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd Activity Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr

Construct road to tunnel entrance Complete access road Construct amenities area buildings Tunnel Construction Construct tunnel to Hawera fault Pit bottom development in stone Construct tunnel to coal seam Coal mining operations commence Ventilation shaft construction Coal preparation plant construction Slurry pipeline construction Develop from pit bottom to first extraction panel Coal exported Hydro extraction of coal Target development timetable

7 Whilst not currently anticipated, there remains As part of the new agreement Solid Energy has agreed potential for delays of between one to three that Pike River will have capacity reserved of up to months against the current mine development 1,300,000 tonnes per annum on the rail network schedule. and that Pike River has priority access to rail and port facilities to transport that tonnage. (f) Other infrastructure An $11.6 million electricity infrastructure contract Port Lyttelton’s coal berth has a depth of 13.1 metres was completed in July 2007 within budget, by local at chart datum, allowing maximum vessel draught supply company Westpower Limited (Westpower) of 12.4 metres sufficient for berthing vessels with a and national transmission infrastructure owner capacity to carry up to 60,000 tonnes of coal. Transpower New Zealand Limited (Transpower). Electricity will be used to power the coal preparation plant, pumps, mine ventilation, mining equipment 4.0 ENVIRONMENTAL, SAFETY and for offices and workshops. AND SOCIAL RESPONSIBILITIES

Environmental management and performance Pike River has committed to protecting the local 3.0 NEW TRANSPORT CHAIN environment and strives to achieve continuous A new and improved Coal Transportation Agreement improvement in environmental performance by (CTA) was signed with Solid Energy New Zealand seeking to prevent, mitigate, reduce, or offset Limited (Solid Energy) in November 2007 for coal to be the environmental impact of its activities. No transported by rail to Port Lyttelton for export. environmental incidents occurred on the mine development in the six months to 31 December 2007. The main factors which led to a change in transport mode were a significant relatively recent increase in The Pike River pest and predator control programme rail capacity that has allowed Solid Energy and Toll is continuing to exterminate rats, stoats and possums. Rail to transport all of Pike River’s coal by rail and the 13 stoats have been caught in the kill traps in the inability of West Coast Coal Company Limited (WCCC) past few months which is an excellent outcome. The to meet the financing condition in the transport objective is to significantly reduce local predation, over services agreement despite several time extensions the Pike Stream and Kakapo Catchments covering an granted by Pike River. area of 1350 hectares, which has seriously harmed native birdlife including the blue duck (whio). Following ONTRACK’s upgrade of the rail route from the West Coast to Christchurch and implementation of improved traction control on trains, Solid Energy and Toll Rail are able to introduce 45 wagon trains boosting the capacity and efficiency of the Midland line.

The total cost to transport Pike River coal from the coal preparation plant to the point loaded on panamax vessels at Port Lyttelton announced under the new agreement with Solid Energy was approximately $39 per tonne, approximately 15% less than WCCC were able to offer. Pike River has since elected to fund a new rail loadout facility at a capital cost of $11 million which has the benefit of reducing the annual transport cost by a further $1 per tonne. The total transport cost Blue duck (whio) of $38 per tonne is below the level forecast in the IPO Offer Document of $40 per tonne.

8 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

Installing predator traps – October 2007

Safety management and performance contributed to another 100 site inductions completed The Pike River Board, management and employees are across the Pike project during the reporting period. committed to providing a safe and healthy workplace There were no serious harm incidents during the and environment for all employees, contractors, reporting period. visitors, and the general public. Safety & training initiatives Effective planning, review and evaluation enable Pike The safety and training department of Pike River River to establish a sustainable framework to develop, is currently working on a conceptual model for the maintain and promote a safe-working environment. development of a trainee production coal miner A framework of planning, implementation, review programme. With skill shortages being an issue across and evaluation gives assurance that a continuous a diverse range of industries around New Zealand, Pike improvement model has been implemented at the River is examining developing a system where new site and is working effectively. The cornerstone of this people with little or no coal mining industry experience risk management strategy is simply to: Plan, Do and can be trained to become production coal miners. Pike Review what has been completed thus far. River is working with other stakeholders such as the local Polytechnic and the Extractive Industries Training In addition to several other areas under development, Organisation in the consultative development of this construction is well underway at both the coal programme. preparation plant and the bath-house sites. This has

9 Pike River is setting up an apprentice training supplied under these conditional contracts are to be programme that has seen healthy levels of applicants negotiated and agreed annually by reference to premium apply for the six roles advertised (three mechanical Queensland hard coking coal prices, taking into account and three electrical trades). The apprentices will freight and quality differentials, the prices negotiated spend their first year with nominated host companies and agreed by Pike River with its overseas hard coking throughout the Grey Valley. It is anticipated that these coal buyers for the relevant contract year, and the size of indentured employees will commence full-time work at the contract relative to Pike River’s coal production.1 the Pike River mine in mid 2009. The impact of a higher than expected New Zealand Community sponsorships and initiatives dollar is being buffered by higher coal prices. Pike River is very active in the sponsorship of local Typically, higher New Zealand and Australian and community based events and services and enjoys exchange rates relative to the US dollar translate to high levels of active involvement in community higher international coal prices as the Australian coal events by staff. Sponsorships in the reporting period producers dominate the supply of product. include naming sponsorship of the West Land Search and Rescue bus and the Sports West Coast Schools Holiday Programme. Pike River also made supporting 6.0 MINE DEVELOPMENT FULLY FUNDED

sponsorships to the Ikamatua Fire Brigade, Greymouth $100 million raised to complete financing Squash, Greymouth Dance and the Mawhero young Pike River successfully raised approximately $100 writers competition during the current period. million in March 2008 through the combination of a rights issue of 66,666,667 new shares and a US$30 million (approximately $37.4 million) convertible bond 5.0 COAL MARKET AND PRICES facility with Liberty Harbor LLC. Recent forecasts by market observers for premium hard The rights issue to existing shareholders was very coking coal benchmark prices for the 2008/09 year well received especially considering the current (Japanese fiscal year commencing 1 April 2008) are turbulent nature of equity markets. The rights issue US$200 per tonne and higher. This compares to the offer of 66,666,667 shares at 90 cents each was current price of US$96 per tonne and the IPO Offer oversubscribed by 5%. Applications were received Document forecast of US$101 per tonne. Demand from 73% of shareholders with more than 2,000 from India and China continues to be highly influential. shareholders applying for shares in excess of their For the first time ever, China has in 2007 become a entitlement therefore requiring scaling. net importer of both thermal and coking coal. Longer term coking coal prices from 2010 onwards are also Pike River shareholders approved the issue of the expected to lift compared to the IPO Offer Document convertible bonds to Liberty Harbor LLC at a special due to ongoing strong international demand. meeting held on 4 February 2008. The convertible bonds have a three year term, receive interest at Pike River premium coal has some very good selling 6.75% and can be converted into shares during the properties including an ultra low ash content (ash is term at the bondholders election at $1.17 per share. a non-combustible waste product) and high fluidity Liberty Harbor LLC is a significant investment fund and (useful for binding coals when making coke). is part of Goldman Sachs Asset Management. Seventy percent of the first three years’ production has Improved financing package been pre-sold by Pike River under long-term contract, The new funding arrangements are considered by the subject to annual agreement on the sales price. Fifty- Pike River Board to be superior to prior arrangements. five percent has been sold for the life of the mine At the time of undertaking its IPO, Pike River proposed to its Indian shareholders, Saurashtra Fuels Private that its remaining funding requirements would be Limited and Gujarat NRE Limited. Prices for coal

1 Each year Pike River will need to obtain shareholder approval of the renegotiated price payable under these conditional contracts unless a waiver is granted by NZX. It is Pike River’s intention to seek a waiver from NZX annually from that requirement and, in connection with such waiver application, it is Pike River’s 10 intention to provide NZX with an independent report regarding the fairness of the renegotiated price. PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

met by entering into a senior debt finance facility During the six months ended 31 December 2007 with a major bank(s). Westpac Banking Corporation a further $51.8 million was invested in the mine had been mandated to seek to arrange debt facilities development, taking the total cash invested since totalling $65 million. However, Pike River allowed the the project was green-lighted in September 2005 to Westpac mandate to expire on 21 December 2007, $120.3 million. The remaining capital expenditure because the new funding arrangements provided better (from 1 January 2008) is forecast at $75.7 million availability, flexibility and certainty. (including the $11 million contingency allowance).

Several terms of the proposed Westpac facility, including the unavailability to draw down funds until 7.0 EXTRACTABLE COAL the tunnel had reached first coal and the need for guarantees from NZOG (with the associated costs), A total of 17,600,000 tonnes of saleable coal is combined with alterations in the credit market which scheduled for extraction from the Brunner Seam would be reflected in higher interest rates under the under Pike River’s mine plan. Of this saleable coal, facility, led to the alternative funding package being approximately 9,700,000 tonnes is scheduled for arranged by Pike River. extraction from proved and probable reserves and 7,300,000 tonnes is expected to be recovered from Total project budget currently inferred resources. A further 600,000 tonnes Total mine development capital expenditure is now is targeted for recovery from various areas covered by forecast at $196 million with an additional $34 million the permit which are currently within mining control required for working capital requirements (comprising zones, but which Pike River believes will be able to be finance costs, coal inventory, corporate and labour mined after review of Pike River’s mining activities by costs etc). the relevant regulator.

An additional $11 million is required to construct a new rail load out facility under the new coal transport arrangements.

Summary of source of extractable and saleable coal from Pike River’s mine plan.

Total ROM Extractable Coal (million tonnes) Production1 Reject2 Dolomite3 Saleable Coal4 Reserves 11.0 0.4 0.9 9.7 Northern area (Inferred Resource 15Mt) 6.9 2.0 0.3 4.6 South-east area (Inferred Resource 4.1Mt) 1.5 0.2 - 1.3 Extra auger tonnes and 10% from central area 1.5 0.1 - 1.4 Mining control zone (reduced zone) 0.7 0.1 - 0.6 Totals 21.6 2.8 1.2 17.6

1 Total ROM Production is the total run of mine (ROM) unprocessed production from the mine inclusive of all extracted material including coal, dolomite and reject. 2 Reject is the material such as rock which is extracted as part of ROM production and is removed from the coal during the coal preparation process and is of no commercial value. 3 Dolomite is a precipitate found in nodules within the ROM production seam which is extracted as part of ROM production, is separated from the coal during the coal preparation process and is of some commercial value as a fertiliser. 4 Saleable coal is the final saleable coal production of Pike River that is transported to Port Lyttelton for export. 5 The information in this table is a summary of the JORC Code compliant information contained in section 3.4.2 of the IPO Offer Document dated 5 June 2007. The IPO Offer Document is available in the ‘Other Documents’ section of Pike River’s website at www.pike.co.nz. 6 The information in section 7 of this Half Year Report relating to coal reserves is based on information compiled by Graeme Rigg who is a member of The Australasian Institute of Mining and Metallurgy. Graeme Rigg is employed by Minarco-MineConsult Pty Ltd and is a full-time employee of that company. Graeme Rigg is a Competent Person as defined in the 2004 Edition of the “Australasian Code for reporting of Exploration Results, Mineral Resources and Ore Reserves.” 11 8.0 UPSIDE OPPORTUNITIES – INCREASED 10.0 FINANCIAL RESULTS TO 31 DECEMBER RESOURCE RECOVERY 2007

Pike River believes there is significant opportunity to Pike River has recorded a net deficit of NZ$1.58 enhance the Company’s value by taking advantage million for the six months ended 31 December of several options not currently included in the mine 2007, largely related to one-off staff recruitment, plan. Should all of the upside identified be realised relocation and related costs, together with a $1.67 (which may or may not be possible), total additional million cost related to termination of Pike River’s coal coal recoveries of approximately 11,000,000 tonnes transport arrangements with WCCC. The result is not (or a 63% increase on the current proposed extraction) particularly relevant as it relates to the pre-production could be available to Pike River from within the current status of the Pike River project. mining permit area. Extraction within the Brunner and Paparoa seams would also better utilise the mine infrastructure being developed by Pike River, although extraction from the Paparoa seam would require significant additional capital expenditure (yet to be determined) to access the coal seam. Further details on the upside potential is set out in the Company’s 2007 Annual Report (www.pike.co.nz)

9.0 CARBON DIOXIDE EQUIVALENT EMISSIONS

Pike River has estimated that fugitive methane gas emissions from its mine are likely to equate to approximately 1,400,000 tonnes carbon dioxide equivalent over the mine life. The Brunner coal seam at Pike River is exposed to the atmosphere along the entire western escarpment which has resulted in considerably lower methane gas levels than is commonly found in underground mines. Total carbon dioxide equivalent emissions over the mine life could possibly be reduced to as low as 184,000 tonnes if all methane is able to be captured, burnt and therefore converted to carbon dioxide (depending on the economics and regulatory environment at the time).

12 Pike River Coal Limited

Condensed Interim Financial Statements F0r the six Months ended 31 December 2007

Contents Page Condensed interim income statement 14 Condensed interim statement of changes in equity 15 Condensed interim balance sheet 16 Condensed interim statement of cash flows 17 Notes to the condensed interim financial statements 18-32 1. Reporting entity 18 2. Basis of preparation 18 3. Significant accounting policies 19 -23 4. Segment reporting 23 5. Administrative expenses 23 6. Net finance costs 23-24 7. Property, plant and equipment 24 8. Mine development assets 24 9. Bonds and deposits 24 10. Other non-current assets 24 11. Deferred expenditure 24 12. Trade and other payables 25 13. Provisions 25 14. Interest bearing loans and borrowings 25 15. Share capital 26 16. Share based payments 26-27 17. Earnings per share 27-28 18. Reconciliation of profit/(loss) for the period with net cash from operating activities 28 19. Explanation of transition to NZIFRS 28-31 20. Contingencies 31 21. Commitments 32 22. Subsequent events 32 Auditors’ review report 33

13 Condensed interim income statement

6 months ended 12 months ended 6 months ended 31 December 2007 30 June 2007 31 December 2006 In thousands of New Zealand dollars Notes (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited)

Revenue 2 - - Administrative expenses 5 (4,254) (1,094) (491 )

Operating profit/(loss) from operating activities (4,252) (1,094) (491 )

Finance income 6a 2,768 102 668

Finance expenses 6b (95) (11) (10 )

Net finance costs 2,673 91 658

Profit/(loss) before income tax (1,579) (1,003) 167

Income tax expense - 122 (107 )

Profit/(loss) for the period (1,579) (881) 60

Earnings per share

Basic (cents per share) 17 Nil Nil 0.1 Diluted (cents per share) Nil Nil 0.1 17

The notes on pages 18 to 32 are an integral part of these condensed interim financial statements.

14 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

Condensed interim statement of changes in equity

Share capital Retained earnings Total equity In thousands of New Zealand dollars Notes (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited)

Balance at 1 July 2006 71,727 1,846 73,573 Total recognised income and expense for the period Profit/(loss) for the period - 60 60 Contributions from owners Value of employee services received 15/16 56 - 56 Balance at 31 December 2006 71,783 1,906 73,689

Balance at 1 January 2007 71,783 1,906 73,689 Total recognised income and expense for the period Profit/(loss) for the period - (941) (941) Contributions from owners Issue of convertible notes 14/15 9,524 - 9,524 Value of employee services received 15/16 157 - 157 Balance at 30 June 2007 81,464 965 82,429

Balance at 1 July 2007 81,464 965 82,429 Total recognised income and expense for the period Profit/(loss) for the period - (1,579) (1,579) Contributions from owners Issue of ordinary shares 15 78,204 - 78,204 Value of employee services received 15/16 404 - 404 Balance at 31 December 2007 160,072 (614) 159,458

The notes on pages 18 to 32 are an integral part of these condensed interim financial statements.

15 Condensed interim balance sheet

As at 31 December 2007 As at 30 June 2007 As at 31 December 2006 In thousands of New Zealand dollars Notes (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited)

Assets Property, plant and equipment 7 296 231 280 Mine development assets 8 140,564 95,099 60,718 Intangible assets 5,102 4,158 3,724 Bonds and deposits 9 5,750 4,867 4,867 Other non-current assets 10 - 626 538 Total non-current assets 151,712 104,981 70,127 Cash and cash equivalents 18,644 7,406 6,849 Trade and other receivables 737 562 383 Deferred expenditure 11 758 3,999 2,138 Total current assets 20,139 11,967 9,370 Total assets 171,851 116,948 79,497

Liabilities Convertible notes 14(a) - 1,280 - Provisions 13 606 210 221 Deferred tax liabilities - - 229 Total non-current liabilities 606 1,490 450 Loans and borrowings 14(b) - 18,220 - Convertible notes 872 - - Trade and other payables 12 10,828 14,731 5,281 Employee benefits 87 78 53 Other current liabilities - - 24 Total current liabilities 11,787 33,029 5,358 Total liabilities 12,393 34,519 5,808 Net assets 159,458 82,429 73,689

Equity Share capital 15 160,072 81,464 71,783 Retained earnings (614) 965 1,906 Total equity 159,458 82,429 73,689

John Dow (Chairman) Stuart Nattrass (Director) Date: 26 February 2008 Date: 26 February 2008

The notes on pages 18 to 32 are an integral part of these condensed interim financial statements.

16 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

Condensed interim statement of cash flows

6 months ended 12 months ended 6 months ended 31 December 2007 30 June 2007 31 December 2006 In thousands of New Zealand dollars Notes (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited)

Cash flows from operating activities Cash paid to suppliers and employees (1,713) (453) (392) Interest received 2,198 82 668 Interest paid (88) - - Other (39) - - Net cash from/(used in) operating activities 18 358 (371) 276

Cash flows from investing activities Acquisition of mine development assets (51,092) (45,645) (19,920) Acquisition of intangible assets (724) (722) (288) Acquisition of other fixed assets (124) (24) (23) Payments of bonds and deposits (883) (2,287) (2,287) Payment of advances - (626) (538) Net cash from/(used in) investing activities (52,823) (49,304) (23,056)

Cash flows from financing activities Proceeds from issue of share capital 15 85,000 19,400 19,400 Proceeds from issue of convertible notes 14/15 - 11,000 - Proceeds from borrowings 14(b) - 18,500 - Deferred expenditure (2,797) (2,767) (719) Repayment of borrowings 14(b) (18,500) (330) (330) Net cash from/(used in) financing activities 63,703 45,803 18,351

Net increase/(decrease) in cash and cash equivalents 11,238 (3,872) (4,429) Opening cash and cash equivalents 7,406 11,278 11,278 Closing cash and cash equivalents 18,644 7,406 6,849

The notes on pages 18 to 32 are an integral part of these condensed interim financial statements.

17 Notes to the condensed interim financial statements

1. Reporting entity Pike River Coal Limited (‘Pike River’) is a company domiciled in New (b) Basis of measurement Zealand, registered under the Companies Act 1993 and listed on the The financial statements have been prepared on the historical New Zealand Stock Exchange (‘NZSX’) and Australian Stock Exchange cost basis except for derivative financial instruments, which are (‘ASX’). Pike River is an issuer in terms of the Financial Reporting Act measured at fair value. 1993. (c) Functional and presentation currency Pike River is primarily involved in the exploration and evaluation, These financial statements are presented in New Zealand dollars development, and production of coal. ($), which is Pike River’s functional currency. Unless otherwise indicated, all financial information presented in New Zealand dollars has been rounded to the nearest thousand. 2. Basis of preparation (d) Use of estimates and judgements (a) Statement of compliance The preparation of financial statements requires management The condensed interim financial statements have been prepared to make judgements, estimates and assumptions that affect the in accordance with New Zealand Generally Accepted Accounting application of accounting policies and the reported amounts of Practice (‘NZGAAP’). They comply with New Zealand equivalents assets, liabilities, income and expenses. Actual results may differ to International Financial Reporting Standards (‘NZIFRS’), and from these estimates. other applicable Financial Reporting Standards, as appropriate

for profit-oriented entities. Compliance with NZIFRS ensures that Estimates and underlying assumptions are reviewed on an ongoing the condensed interim financial statements also comply with basis. Revisions to accounting estimates are recognised in the International Financial Reporting Standards (‘IFRS’). period in which the estimate is revised and in any future periods affected. These are Pike River’s first NZIFRS condensed interim financial

statements for part of the period covered by the first IFRS annual In particular, information about significant areas of estimation financial statements and NZIFRS 1 First-time Adoption of New uncertainty and critical judgements in applying accounting policies Zealand equivalents to International Financial Reporting Standards that have the most significant effect on the amount recognised in has been applied. the financial statements are described in the following notes: • Note 13 – Provisions Financial statements of Pike River up to 30 June 2007 have been • Note 19 – Explanation of transition to NZIFRS prepared in accordance with previous NZGAAP. NZGAAP differs • Note 20 – Contingencies in certain respects from NZIFRS. When preparing the Pike River

condensed interim financial statements for the period ended 31 (e) Adoption status of relevant new NZIFRS and Interpretations December 2007, management has amended certain accounting Pike River has elected not to early adopt the following standards and valuation methods applied in the previous NZGAAP financial which have been issued but are not yet effective: statements to comply with NZIFRS. Where appropriate, • NZ IAS 1 Presentation of financial statements – revision ap- comparative figures in these condensed interim financial proved in November 2007 and effective for annual reporting statements have been restated to reflect these adjustments. An period beginning on or after 1 January 2009 explanation of how the transition to NZ IFRS has affected the • NZ IAS 23 Borrowing costs – revision approved in July 2007 reported financial position, financial performance and cash flows and effective for annual reporting period beginning on or after of Pike River is provided in note 19. 1 January 2009 • NZ IFRS 8 Operating segments – approved in December 2006 These condensed interim financial statements have been prepared and effective for annual reporting period beginning on or after in accordance with International Financial Reporting Standard 1 January 2009. IAS 34 Interim Financial Reporting. They do not include all of

the information required for full annual financial statements, and The adoption of these standards is not expected to have a material should be read in conjunction with the financial statements of Pike impact on Pike River’s condensed interim financial statements. River as at and for the year ended 30 June 2007 and any public announcements made by Pike River during the interim reporting period.

These condensed interim financial statements were approved by the Board of Directors on 26 February 2008.

18 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

3. Significant accounting policies Advances, bonds and deposits The accounting policies set out below have been applied consistently Advances, bonds and deposits are stated at their cost less to all periods presented in these financial statements. impairment losses.

(a) Foreign currency transactions Trade and other payables Transactions in foreign currencies are translated at exchange Trade and other payables are stated at cost. rates prevailing at the dates of the transactions. Monetary assets Interest-bearing borrowings and liabilities denominated in foreign currencies at the reporting Interest-bearing borrowings are recognised initially at fair date are retranslated to the functional currency at the exchange value less attributable transaction costs. Subsequent to initial rate at that date. The foreign currency gain or loss on monetary recognition, interest-bearing borrowings are stated at amor- items is the difference between amortised cost in the functional tised cost with any difference between cost and redemption currency at the beginning of the period, adjusted for effective value being recognised in profit or loss over the period of the interest and payments during the period, and the amortised cost borrowings on an effective interest basis. in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in (ii) Derivative financial instruments foreign currencies that are measured at fair value are retranslated In line with its stated risk management strategies, Pike River to the functional currency at the exchange rate at the date that the may, from time to time, uses derivative financial instruments fair value was determined. Foreign currency differences arising on to hedge its exposure to interest rate risk and foreign ex- retranslation are recognised in the income statement. change risks arising from operational and financing activities.

(b) Financial instruments Derivative financial instruments are recognised initially at fair (i) Non-derivative financial instruments value and transaction costs are expensed immediately. Sub- Non-derivative financial instruments comprise trade and other sequent to initial recognition, derivative financial instruments receivables, cash and cash equivalents, bonds and deposits, are stated at fair value. The gain or loss on remeasurement to advances, loans and borrowings, convertible notes and trade fair value is recognised immediately in the income statement. and other payables. (iii) Convertible notes Non-derivative financial instruments are recognised initially at Convertible notes are accounted for as compound financial fair value plus, for instruments not at fair value through profit instruments. Transaction costs that relate to the issue of a or loss, any directly attributable transaction costs. Subsequent compound financial instrument are allocated to the liability to initial recognition non-derivative financial instruments are and equity components in proportion to the allocation of measured as described below. proceeds. The equity component of the convertible notes is calculated as the excess of the issue proceeds over the A financial instrument is recognised if Pike River becomes a present value of the future interest payments, discounted at party to the contractual provisions of the instrument. Finan- the market rate of interest applicable to similar liabilities that cial assets are derecognised if Pike River’s contractual rights do not have a conversion mechanism. The interest expense to the cash flows from the financial assets expire or Pike River recognised in profit or loss is calculated using the effective transfers the financial asset to another party without retaining interest rate method. control or substantially all risks and rewards of the asset. Purchases and sales of financial assets are accounted for at (iv) Share capital trade date, i.e., the date that Pike River commits itself to pur- Ordinary shares are classified as equity. Incremental costs chase or sell the asset. Financial liabilities are derecognised if directly attributable to the issue of new shares or options are Pike River’s obligations specified in the contract expire or are shown in equity as a deduction from the proceeds. discharged or cancelled. (c) Property, plant and equipment Cash and cash equivalents (i) Recognition and measurement Cash and cash equivalents comprise cash balances and call Items of property, plant and equipment are measured at cost deposits. less accumulated depreciation and impairment losses.

Trade and other receivables Cost includes expenditures that are directly attributable to the Trade and other receivables are stated at their cost less acquisition of the asset. The cost of self-constructed assets impairment losses. includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling

19 and removing the items and restoring the site on which (d) Production, mine development, exploration and evaluation they are located. Purchased software that is integral to the expenditure functionality of the related equipment is capitalised as part of Expenditure incurred on coal ‘areas of interest’ is accounted for that equipment. The cost also includes dismantling and site using the successful efforts method. An area of interest is defined rehabilitation costs to the extent that these are recognised as by Pike River as being a licence or permit area. Exploration and a provision. evaluation expenditure is written off in the income statement under the successful efforts method of accounting in the period When parts of an item of property, plant and equipment have that exploration work demonstrates that an area of interest, or any different useful lives, they are accounted for as separate items part thereof, is no longer prospective for economically recoverable (major components) of property, plant and equipment. resources or when the decision to abandon an area of interest is (ii) Leased assets made. Leases in terms of which Pike River assumes substantially all (i) Production interests of the risks and rewards of ownership are classified as finance Production interests comprise development costs (excluding leases. Upon initial recognition the leased asset is measured fixed asset expenditure) incurred in relation to areas of inter- at any amount equal to the lower of its fair value and the est in which coal production has commenced. Expenditure on present value of the minimum lease payments. Subsequent production interests is amortised using the production output to initial recognition, the asset is accounted for in accordance method resulting in an amortisation charge proportional to with the accounting policy applicable to that asset. the depletion of economically recoverable proven resources. Other leases are operating leases and the leased assets are Where such costs are considered not to be fully recoverable not recognised on Pike River’s balance sheet. under existing conditions, an amount is provided to cover the shortfall in accordance with the impairment testing require- Lease payments are accounted for as described in accounting ments stated under note 3(g). policy 3(l). (ii) Development interests (iii) Subsequent costs Development interests comprise both tangible costs (min- The cost of replacing part of an item of property, plant and ing development assets) and intangible costs (intangible equipment is recognised in the carrying amount of the item development assets) incurred on areas of interest in which if it is probable that the future economic benefits embodied economically recoverable resources have been identified within the part will flow to Pike River and its cost can be and which are being developed for production. Such costs measured reliably. The costs of the day-to-day servicing of include direct costs plus overhead expenditure incurred which property, plant and equipment are recognised in profit or loss can be directly attributable to the development process. All as incurred. development costs incurred prior to the commencement of

(iv) Depreciation commercial levels of coal production from each area of inter- Depreciation is recognised in the income statement on a est are capitalised. No amortisation is provided in respect of straight-line basis over the estimated useful lives of each part development assets until they are reclassified as production of an item of property, plant and equipment. The useful life interests following commencement of coal production. of such equipment is dependant upon future production and The carrying amounts are subject to impairment testing remaining reserves. Land is not depreciated. in accordance with note 3(g).

The estimated useful lives for the current and comparative (iii) Exploration and evaluation interests periods are as follows: Exploration and evaluation interests comprise both tangible and intangible costs incurred in areas of interest for which Technical and computer equipment 2 to 5 years rights of tenure are current and: Plant and equipment 4 to 18 years • such costs are expected to be recouped through successful Motor vehicles and trucks 5 years development and exploitation of the area, or alternatively, Office furniture and fittings 5 to 8 years by its sale; or Buildings 18 years • exploration and/or evaluation activities in the area have not yet reached a stage which permits a reasonable assessment Depreciation methods, useful lives and residual values are and/or evaluation of the existence or otherwise of economi- reassessed at each reporting date. cally recoverable resources, and active and significant operations in, or in relation to, these areas are continuing.

20 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

The ultimate value of areas of interest is contingent upon the (f) Inventories results of further exploration and agreements entered into Inventories are measured at the lower of cost and net realisable with other parties and also upon meeting commitments under value. The cost of inventories is based on the weighted average the terms of permits granted and any other related agree- cost principle, and includes expenditure incurred in acquiring ments. the inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the Certain intangible exploration and evaluation costs, including ordinary course of business, less the estimated costs of completion the costs of acquiring mining licenses and resource consents, and selling expenses. are capitalised as intangible exploration and evaluation assets (‘E&E assets’) pending determination of the technical feasibil- (g) Impairment ity and commercial viability of the project. The technical The carrying amounts of Pike River’s assets are reviewed at each feasibility and commercial viability of extracting a mineral balance sheet date to determine whether there is any objective resource is considered to be determinable when proven re- evidence of impairment. serves are determined to exist. When a license is relinquished An impairment loss is recognised whenever the carrying amount or a project is abandoned, the related costs are recognised in of an asset exceeds its recoverable amount. Impairment losses the income statement. If the project proceeds to the develop- directly reduce the carrying amount of assets and are recognised ment phase when economically recoverable reserves are in the income statement. determined, the tangible and intangible E&E assets are first assessed for impairment before they are reclassified to ‘min- (i) Impairment of receivables (including bonds, deposits and ing development assets’ and ‘intangible development assets’ advances) respectively. The carrying amounts of E&E assets are subject The recoverable amount of Pike River’s receivables carried at to impairment testing in accordance with note 3(g). amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective inter- (iv) Research est rate (i.e. the effective interest rate computed at initial Expenditure on research activities, undertaken with the recognition of these financial assets). Receivables with a short prospect of gaining new scientific or technical knowledge and duration are not discounted. understanding, is recognised in the income statement when incurred. (ii) Non-financial assets The carrying amounts of Pike River’s non-financial assets, (e) Intangible assets other than, inventories, E&E assets and deferred tax assets (i) Intangible development assets are reviewed at each reporting date to determine whether Intangible development assets comprise intangible E&E there is any indication of impairment. If any such indication assets previously capitalised and then reclassified when exists then the asset’s recoverable amount is estimated. economically recoverable resources are determined. It also includes any subsequent development costs incurred that are An impairment loss is recognised if the carrying amount of of an intangible nature. The intangible development assets an asset or its cash-generating unit exceeds its recoverable are stated at cost less accumulated impairment losses. No amount. A cash-generating unit is the smallest identifi- amortisation is provided in respect of these assets until they able asset group that generates cash flows that are largely are reclassified as production assets following commencement independent from other assets and groups. Impairment losses of coal production. are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated to reduce (ii) Subsequent expenditure the carrying amount of the other assets in the unit (group of Subsequent expenditure is capitalised only when it increases units) on a pro rata basis. the future economic benefits embodied in the specific asset to which it relates. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to (iii) Amortisation sell. In assessing value in use, the estimated future cash flows Amortisation is recognised in profit or loss on a straight-line are discounted to their present value using a pre-tax discount basis over the estimated useful lives of intangible assets, with rate that reflects current market assessments of the time the exception of intangible development assets which are not value of money and the risks specific to the asset. amortised until production commences, after which they are amortised using the production output method. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists.

21 An impairment loss is reversed if there has been a change in which the employees become unconditionally entitled to the the estimates used to determine the recoverable amount. An partly-paid shares. The amount recognised as an expense impairment loss is reversed only to the extent that the asset’s is adjusted to reflect the actual number of partly-paid shares carrying amount does not exceed the carrying amount that that vest. would have been determined, net of depreciation or amortisa- (j) Revenue tion, if no impairment loss had been recognised. Revenue from the sale of coal, including development coal (iii) Exploration and evaluation assets is recognised only when the significant risks and rewards of Exploration and evaluation assets are tested for impairment ownership have been transferred to the buyer, recovery of the when: consideration is probable, the associated costs and possible return • the period of exploration right has expired or will expire in of goods can be estimated reliably, and there is no continuing the near future, management involvement with the goods. The timing of revenue • substantive expenditure on further development or explora- recognition may vary depending on the individual terms of tion for mining coal in the specific area is neither budgeted the contract of sale. Revenue is measured at the fair value of or planned, the consideration received or receivable, net of returns and • exploration for and evaluation of coal in the specific area allowances, trade discounts and volume rebates. have not led to the discovery of commercially viable quanti- (k) Other income ties, or Other income comprises revenue from the sale of prospecting • Pike River has decided to discontinue such activities in the and mining permit rights and is measured at the fair value of the area or there is sufficient data to indicate that the carrying consideration received or receivable. It is recognised when the amount of the exploration and evaluation asset is unlikely significant risks and rewards of ownership have been transferred to be recovered in full from successful development or by to the buyer. Other income also includes net gains on disposal of production and sale. property, plant and equipment. (h) Provisions A provision is recognised if, as a result of a past event, Pike (l) Lease payments River has a present legal or constructive obligation that can be Payments made under operating leases are recognised in profit estimated reliably, and it is probable that an outflow of economic or loss on a straight-line basis over the term of the lease. Lease benefits will be required to settle the obligation. Provisions are incentives received are recognised as an integral part of the total determined by discounting the expected future cash flows at a pre- lease expense, over the term of the lease. tax rate that reflects current market assessments of the time value (m) Finance income and expenses of money and the risks specific to the liability. Finance income comprises interest income on funds invested, (i) Rehabilitation provision foreign currency gains and gains on hedging instruments that are Rehabilitation expenditure to be incurred subsequent to the recognised in profit or loss. Interest income is recognised as it cessation of production from production areas of interest is accrues, using the effective interest method. provided for and expensed in the statement of financial per- Finance expenses comprise interest expense on borrowings, formance based on best estimates of the expenditure required unwinding of the discount on provisions, foreign currency losses, to settle the present obligations at balance date. impairment losses recognised on financial assets (except for trade (i) Employee benefits receivables) and losses on hedging instruments that are recognised (i) Short-term benefits in profit or loss. All borrowing costs are recognised in profit or loss Short-term employee benefit obligations e.g. holiday pay, are using the effective interest method. measured on an undiscounted basis and are expensed as the Borrowing costs incurred for the construction of any qualifying related service is provided. A provision is recognised for the assets e.g. mining development assets are capitalised during the amount expected to be paid under short-term employee ben- period of time that is required to complete and prepare the asset efits if Pike River has a present legal or constructive obligation for its intended use or sale. Other borrowing costs are expensed. to pay this amount as a result of past service provided by the Borrowing costs that have been capitalised as part of mine employee and the obligation can be estimated reliably. development assets are amortised in accordance with note 3(d). (ii) Share-based payments (n) Income tax The grant date fair value of partly-paid shares granted to em- Income tax comprises current and deferred tax. Income tax is ployees of Piker River are recognised as employee expenses, recognised in the income statement except to the extent that it with a corresponding increase in equity over the period in

22 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

relates to items recognised directly in equity, in which case it is 5. Administrative expenses recognised in equity. Included within Administrative Expenses for the six months ended 31 December 2007 is an amount of $1,674,000 (six months ended 31 Current tax is the expected tax payable on the taxable income for December 2006: nil) representing the cost of Pike River’s obligations the year, using tax rates enacted or substantively enacted at the under certain indemnities provided to West Coast Coal Company reporting date, and any adjustment to tax payable in respect of Limited (‘WCCC’) in connection with a Transport Services Agreement previous years. (‘TSA’) for transportation of Pike River’s coal that was terminated by Deferred tax is recognised using the balance sheet method, Pike River on 18 November 2007. The basis for recognition of this providing for temporary differences between the carrying amounts expense and the method of settlement are discussed further in notes of assets and liabilities for financial reporting purposes and the 10, 12 and 20. amounts used for taxation purposes. Deferred tax is not recognised Also included in Administrative Expenses for the six months ended 31 following temporary differences where the initial recognition of December 2007 is a charge of $1,216,000 (31 December 2006: nil) assets or liabilities relates to a transaction that is not a business resulting from a review of capitalised mine development assets as set combination and at the time of that transaction it affects neither out in note 8(a). accounting nor taxable profit. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences

when they reverse, based on the laws that have been enacted or 6. Net finance costs substantively enacted by the reporting date. (a) Finance income

A deferred tax asset is recognised to the extent that it is probable 6 months 6 months ended 31 12 months ended 31 that future taxable profits will be available against which December ended 30 December temporary differences can be utilised. Deferred tax assets are 2007 June 2007 2006 reviewed at each reporting date and are reduced to the extent that Finance income (NZIFRS (NZIFRS (NZIFRS it is no longer probable that the related tax benefit will be realised. In thousands of dollars unaudited) unaudited) unaudited)

Interest income 2,178 102 668 (o) Earnings per share Pike River presents basic and diluted earnings per share (EPS) Realised foreign exchange data for its ordinary shares. gains 19 - - Unrealised foreign Basic EPS is calculated by dividing the profit or loss attributable exchange gains 571 - - to ordinary shareholders of Pike River by the weighted average 2,768 102 668 number of ordinary shares outstanding during the period. (i) Interest income Diluted EPS is determined by adjusting the profit or loss Interest income represents amounts earned on investment attributable to ordinary shareholders and the weighted average of surplus cash funds in either on-call or term deposits with number of ordinary shares outstanding for the effects of all dilutive major domestic and international financial institutions. potential ordinary shares. (ii) Unrealised foreign exchange gains (p) Segment reporting Unrealised foreign exchange gains at 31 December 2007 A segment is a distinguishable component of Pike River that arise primarily in relation to foreign denominated cash and is engaged in providing related products or services, which is deposits held by Pike River. subject to risks and rewards that are different from those of other segments. Pike River’s primary format for segment reporting is based on business segments.

4. Segment reporting Pike River currently operates within one primary segment, being the operation of the Pike River coal mine based near Greymouth on the West Coast of the South Island, New Zealand. Sales revenues are expected to be initially derived primarily through sales of coal to the Asia Pacific region.

23 (b) Finance expense 9. Bonds and deposits 6 months 6 months During the six months ended 31 December 2007, Pike River ended 31 12 months ended 31 has arranged to provide a cash-backed third party guarantee to December ended 30 December Westpower Limited (‘Westpower’) to replace the current cash bond of 2007 June 2007 2006 Finance expense (NZIFRS (NZIFRS (NZIFRS $2,287,000 (31 December 2006: $2,287,000) held by Westpower In thousands of dollars unaudited) unaudited) unaudited) in relation to an agreement for supply and installation by Westpower of high voltage electricity supply infrastructure to the mine. Under Realised foreign exchange the terms of the third party guarantee Pike River will be required to losses (70) - - lodge up to $3,130,000 of cash with ANZ National Bank Limited Unwind of discount on (‘ANZ’) (the provider of the guarantee) upon refund of the current cash provisions (7) (11) (5) bond from Westpower. Once the guarantee is issued the cash used to Other (18) - (5) secure the guarantee will be refunded by the ANZ on a monthly basis (95) (11) (10) in line with Pike River’s satisfaction of its monthly obligations under the infrastructure supply agreement.

7. Property, plant and equipment As at 31 December 2007 the refund from Westpower had not been received and consequently the guarantee arrangement (and lodgement During the six months ended 31 December 2007, Pike River acquired of cash with ANZ) had not been established. An amount of $843,000 property, plant & equipment assets with a cost of $124,000 (six (being the difference between the current cash bond and the months ended 31 December 2006: $23,000). amount required to be lodged with ANZ upon commencement of the guarantee) has been included in Bonds and Deposits at 31 December 8. Mine development assets 2007 reflecting Pike River’s commitment to lodge the additional (a) Development activity funds upon satisfaction of the conditions precedent to issuance of the

6 months 6 months guarantee. ended 31 12 months ended 31 December ended 30 December Mine development assets 2007 June 2007 2006 10. Other non-current assets (at cost or deemed cost) (NZIFRS (NZIFRS (NZIFRS Pike River has agreed with WCCC to set-off advances of $626,000 In thousands of dollars unaudited) unaudited) unaudited) previously made by Pike River to WCCC by way of part-settlement of Opening balance 95,099 39,598 39,598 amounts owing to WCCC under the indemnity arrangements triggered Additions 46,681 55,501 21,120 upon termination of the TSA (refer note 20 for further detail). Amounts expensed (1,216) - - Closing balance 140,564 95,099 60,718 Consequently, as at 31 December 2007 these advances have been fully written down to reflect this set-off arrangement. During the current period Pike River has undertaken a review of capitalised development costs included within mine development assets. An amount of $1,216,000 (31 December 2006: nil) has 11. Deferred expenditure been identified as no longer meeting the recognition criteria for (a) Expenses related to preparation for the IPO capitalised development interests as set out in note 3(d) and has During the current period deferred expenditure totalling consequently been charged to profit and loss. $6,796,000 which related to the preparation of Pike River’s Initial Public Offering (‘IPO’) was charged against the gross proceeds of Immediately prior to commencement of coal production, Pike River $85 million achieved on issue and allotment of IPO shares on 18 will undertake a further review of mine development assets with a July 2007. view to reclassifying the capitalised development costs into either property, plant & equipment or production assets in accordance (b) Expenses related to post-IPO capital raising activities with the accounting policies set out in notes 3(c) and 3(d). Expenses totalling $758,000 which were incurred during the current period in relation to Pike River’s recently announced (b) Capital commitments recounceable rights issue and convertible bond placement (refer As at 31 December 2007, Pike River had $25,208,000 of note 22 for further details) have been deferred and will be charged capital commitments (31 December 2006: $11,300,000) that against proceeds achieved upon successful completion of these would be payable if the current mine development activities capital raising activities. were terminated. These commitments relate to committed non-cancellable purchases of long lead time mining equipment and development activities required as part of the ongoing mine development.

24 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

12. Trade and other payables 14. Interest bearing loans and borrowings Included within Trade And Other Payables at 31 December 2007 is an This note provides information about interest-bearing loans and amount of $1,116,000 (31 December 2006: nil) representing accrual borrowings issued and repaid during the periods presented. of Pike River’s outstanding cash obligations in relation to indemnities (a) Convertible notes granted to WCCC in relation to the TSA. These obligations are 6 months 6 months discussed in further detail in note 20. ended 31 12 months ended 31 December ended 30 December 2007 June 2007 2006 13. Provisions Convertible notes (NZIFRS (NZIFRS (NZIFRS 6 months 6 months In thousands of dollars unaudited) unaudited) unaudited) ended 31 12 months ended 31 Opening balance 1,280 - - December ended 30 December Proceeds from issue of 2007 June 2007 2006 Rehabilitation provision (NZIFRS (NZIFRS (NZIFRS convertible notes - 11,000 - In thousands of dollars unaudited) unaudited) unaudited) Amount classified as Opening balance 210 185 185 equity - (9,524) - Provision made during the Unwind of discount (408) (196) - period 373 55 29 Closing balance 872 1,280 - Provisions reversed during Convertible notes on issue by Pike River are mandatorily convertible the period - - - to ordinary shares upon their maturity on 31 December 2008. Unwind of discount 7 11 5 This conversion feature gives rise to separate recognition and Impact of change in discount valuation of the equity component of the convertible notes upon rate 16 (41) 2 adoption of NZIFRS. Further details are set out in notes 3(b)(iii) Closing balance 606 210 221 and 19(b)(iii).

Under an agreement with the Department of Conservation, Pike (b) Loans and borrowings - current River is obliged to rehabilitate any affected land area to an approved Loans with an outstanding face value of $18,500,000 as at 30 condition once coal production from the Pike River mine has ceased. June 2007 were repaid by Pike River during the six months ended This provision represents the costs expected to be incurred to 31 December 2007. Loans had been extended by related parties, rehabilitate areas where mine development work has occurred as at namely - New Zealand Oil & Gas Limited ($16,264,000 at rates balance date. between 13.09% and 13.30%), Gujarat NRE Coke Limited ($1,209,000 at 13.35%) and Saurashtra Fuels Private Limited Because of the long term nature of this liability, the biggest uncertainty in estimating the provision is the quantum of costs that will be ($1,027,000 at 13.34%). incurred to rehabilitate the affected areas. In particular, Pike River has assumed that the site will be restored using technology and materials that are available currently.

An additional provision of $373,000 was made during the six months ended 31 December 2007 (six months ended 31 December 2006: $29,000) reflecting the increased area of mine development and a re- assessment of the likely costs to be incurred. The provision has been calculated using a discount rate of 6.445% as at 31 December 2007 (31 December 2006: 5.775%). The expected remaining life of mine used in the determination of the provision is estimated at 19.5 years as at 31 December 2007 (31 December 2006: 20.5 years).

25 15. Share capital This note provides information about equity instruments issued during the periods presented.

6 months ended 12 months ended 6 months ended Share capital - number 31 December 2007 30 June 2007 31 December 2006 In thousands of shares (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited) Opening balance 115,000 56,551 56,551 Issue of shares pursuant to equity subscription agreements - 22,241 - Share subdivision pursuant to equity subscription agreements - 36,208 - Ordinary shares issued on initial public offering 85,000 - - Equity component of convertible notes - - - Value of employee services provided - - - Closing balance 200,000 115,000 56,551

6 months ended 12 months ended 6 months ended Share capital - value 31 December 2007 30 June 2007 31 December 2006 In thousands of dollars (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited) Opening balance 81,464 71,783 71,727 Issue of shares pursuant to equity subscription agreements - - - Share subdivision pursuant to equity subscription agreements - - - Ordinary shares issued on initial public offering 78,204 - - Equity component of convertible notes - 9,524 - Value of employee services provided 404 157 56 Closing balance 160,072 81,464 71,783

16. Share based payments (a) Share based payments – issue of fully paid shares for nil consideration On 9 June 2006 Pike River approved the issue of 100,000 fully paid shares in the entity for nil consideration to Peter Whittall. These shares were held in escrow by Pike River and were to be forfeited by Peter Whittall if he resigned from the employment of Pike River prior to 30 September 2007. Following completion of the escrow period beneficial ownership of the shares has passed to Peter Whittall as at 31 December 2007.

On 28 July 2006 Pike River shareholders approved the issue of 100,000 fully paid shares in the entity for nil consideration to Gordon Ward. These shares are held in escrow by Pike River and are subject to forfeiture should Gordon Ward not be in the employment of Pike River as at 22 May 2009 (being two years from the date of IPO).

The fair value of services received in return for the fully paid shares granted is measured by reference to the fair value of the shares at the point of grant (being the initial public offering price of $1.00 per share).

(b) Share based payments – Employee Share Ownership Plan On 4 August 2006, Pike River established an Employee Share Ownership Plan (‘ESOP’) that entitles key management personnel and employees to purchase shares in the entity.

During the six months ended 31 December 2007, 1,367,820 partly paid-shares were granted in accordance with the ESOP rules. Additionally a grant of 1,800,000 partly paid shares made on 9 June 2007 is in place as at balance date.

26 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

The terms and conditions of the grants are as follows; all exercise of partly-paid share grants are settled by physical delivery of Pike River ordinary shares:

Grant date / participants Number of instruments Vesting conditions Contractual life of partly-paid shares Partly-paid shares granted to key 900,000 May not be exercised prior to 14 August 2010 management personnel on 14 August 2007 – remaining 9 June 2007 exercise price of $1.19 per share Partly-paid shares granted to key 900,000 May not be exercised prior to 16 16 July 2012 management personnel on July 2009 – remaining exercise 9 June 2007 price of $1.34 per share Partly paid shares granted to 970,500 Vest after two years of service Up to three years post vesting senior management team on (ranging between February 2008 (ranging between February 2011 17 September 2007 and August 2009) – remaining and August 2012) exercise price of $1.14 per share Partly paid shares granted to 397,320 Vest after two years of service Up to three years post vesting employees on 17 September (ranging between November (ranging between November 2007 2008 and July 2009) – 2011 and July 2012) remaining exercise price of $1.14 per share

The fair values of services received in return for partly-paid shares granted to employees are measured by reference to the fair value of partly- paid shares granted. The estimate of the fair value of services received is measured based on a Black-Scholes option valuation model due to the inherent optionality around take-up and exercise of the partly-paid shares issued under the ESOP. The contractual lives of the partly-paid shares are used as an input into this model.

Other key assumptions used in arriving at the fair values are set out in the following table:

Issue of partly-paid shares on 17 Issue of partly-paid shares on 9 June September 2007 2007 Fair value at measurement date $0.23 to $0.30 $0.33 to $0.38 Quoted share price $0.85 $1.00 Exercise price $1.14 $1.19 to $1.34 Expected volatility (based on the historical volatility of Pike River 40% 40% shares since initial listing in July 2007) Partly-paid share contractual life Feb 2011 to Aug 2012 Feb 2011 to Jul 2012 Expected dividends (based on historic dividend 0% 0% pay-outs made by Pike River) Risk-free interest rate (based on government bonds) 6.54% to 6.73% 7.08% to 7.21%

No adjustment to profit attributable to ordinary shareholders for the six months ended 31 December 2007 has been made in respect of interest paid on the mandatorily convertible notes as all such interest payments during the period have been capitalised to Mine Development Assets.

17. Earnings per share (a) Basic earnings per share The calculation of basic earnings per share at 31 December 2007 was based on the loss attributable to ordinary shareholders of $1,579,000 (six months ended 31 December 2006: profit of $60,000) and a weighted average number of ordinary shares outstanding during the six months ended 31 December 2007 of 201,708,000 (six months ended 31 December 2006: 56,551,000), calculated as follows:

6 months ended 12 months ended 6 months ended Profit attributable to ordinary shareholders 31 December 2007 30 June 2007 31 December 2006 In thousands of dollars (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited) Net profit/(loss) attributable to ordinary shareholders (1,579) (881) 60

27 6 months ended 31 12 months ended 30 6 months ended 31 Weighted average number of ordinary shares December 2007 June 2007 December 2006 In thousands of shares (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited) Issued ordinary shares 115,000 56,551 56,551 Effect of adjustment shares issued pursuant to Equity Subscription Agreements - 2,255 - Effect of shares issued pursuant to share subdivision upon issue of adjustment shares - 3,670 - Effect of shares issued on initial public offering 76,616 - - Effect of shares issuable upon conversion of mandatorily convertible notes 10,092 2,516 - Weighted average number of ordinary shares 201,708 64,992 56,551

(b) Diluted earnings per share No dilutive adjustment has been made to the weighted average number of ordinary shares outstanding during the six months ended 31 December 2007 in respect of outstanding share options and partly-paid shares as the average market value of Pike River shares (based on quoted market prices) for the period that the share options and partly-paid shares were outstanding, was lower than the relevant equity instruments exercise prices.

18. Reconciliation of the profit/(loss) for the period with the net cash from operating activities

6 months ended 31 12 months ended 6 months ended 31 Reconciliation of profit/(loss) with net cash from operating activities December 2007 30 June 2007 December 2006 In thousands of dollars Notes (NZIFRS unaudited) (NZIFRS unaudited) (NZIFRS unaudited) Profit/(loss) for the period (1,579) (881) 60

Adjustments for: Depreciation 59 99 50 Unwind of discount on provision for rehabilitation 7 8 5 Value of employee benefits provided 15/16 404 157 56 Net finance costs (2,673) (91) (658) Mine development assets expensed 8a 1,216 - - Change in trade and other payables 180 363 (1) Change in employee benefits 8 14 (11) Change in advances 626 - - Change in deferred tax - (122) 107 Interest received 2,198 82 668 Interest paid (88) - -

Net cash from operating activities 358 (371) 276

19. Explanation of transition to NZIFRS As stated in note 2(a), these are Pike River’s first condensed interim financial statements prepared in accordance with NZIFRS.

The accounting policies set out in note 3 have been applied in preparing the condensed interim financial statements for the six months ended 31 December 2007, the comparative information presented in these condensed interim financial statements for the six months ended 31 December 2006 and the year ended 30 June 2007 and in the preparation of an opening NZIFRS balance sheet at 1 July 2006 (Pike River’s date of transition).

In preparing its opening NZIFRS balance sheet and the comparative information for the six months ended 31 December 2006 and the year ended 30 June 2007, Pike River has adjusted amounts reported previously in financial statements prepared in accordance with its old basis of accounting (previous NZGAAP). An explanation of how the transition from previous NZGAAP to NZIFRS has affected Pike River’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

28 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

(a) Reconciliation of equity

Previous Effect of NZIFRS Previous Effect of NZIFRS Previous Effect of NZIFRS Notes NZGAAP transition NZGAAP transition NZGAAP transition In thousands of dollars 1 July 2006 31 December 2006 30 June 2007 Assets Property, plant and equipment 306 306 280 280 231 231 Mine development assets (i)/(ii)/ 43,492 (3,894) 39,598 64,966 (4,248) 60,718 100,378 (5,279) 95,099 (iii)(iv) Intangible assets (ii) - 3,436 3,436 - 3,724 3,724 - 4,158 4,158 Bonds and deposits 2,580 2,580 4,867 4,867 4,867 4,867 Other non-current assets - - 538 538 626 626 Total non-current assets 46,378 (458) 45,920 70,651 (524) 70,127 106,102 (1,121) 104,981

Cash and cash equivalents 11,278 11,278 6,849 6,849 7,406 7,406 Trade and other receivables 20,778 20,778 383 383 562 562 Deferred expenditure 1,543 1,543 2,138 2,138 3,999 3,999 Total current assets 33,599 - 33,599 9,370 - 9,370 11,967 - 11,967

Total assets 79,977 (458) 79,519 80,021 (524) 79,497 118,069 (1,121) 116,948

Liabilities Convertible notes (iii) - - - - 11,000 (9,720) 1,280 Provisions (iv) 643 (458) 185 740 (519) 221 844 (634) 210 Deferred tax liabilities 122 122 229 229 - - Total non-current liabilities 765 (458) 307 969 (519) 450 11,844 (10,354) 1,490

Loans and borrowings (vi) 354 354 - - 18,500 (280) 18,220 Convertible notes ------Trade and other payables 5,221 5,221 5,281 5,281 14,731 14,731 Employee benefits 64 64 53 53 78 78 Other current liabilities - - 24 24 - - Total current liabilities 5,639 - 5,639 5,358 - 5,358 33,309 (280) 33,029

Total liabilities 6,404 (458) 5,946 6,327 (519) 5,808 45,153 (10,634) 34,519

Net assets 73,573 - 73,573 73,694 (5) 73,689 72,916 9,513 82,429

Equity Share capital (iii)/(v) 71,721 6 71,727 71,721 62 71,783 71,721 9,743 81,464 Asset revaluation reserve (i) 2,891 (2,891) - 2,891 (2,891) - 2,891 (2,891) - Retained earnings (i)/(iii) (1,039) 2,885 1,846 (918) 2,824 1,906 (1,696) 2,661 965 (iv)(v)/ (vi) Total equity 73,573 - 73,573 73,694 (5 ) 73,689 72,916 9,513 82,429

29 (b) Notes to the reconciliation of equity both Convertible Notes and Mine Development Assets by Material adjustments arising on transition to NZIFRS referred to in $195,000. the previous table are set out below. (iv) Provisions (non-current liabilities) (i) Asset revaluation reserve Amounts recognised within this balance reflect Pike River’s At 1 July 2006, 31 December 2006 and 30 June 2007 an obligation to restore certain impacts of the mine operations amount of $2,891,000 has been reclassified from a revalu- upon cessation of mine production activity and ultimately ation reserve recognised under previous NZGAAP to retained mine closure. Under previous NZGAAP, the cost of rectifica- earnings. This amount represents the balance of the revalu- tion was recognised as part of the mine development assets ation reserve as at 1 July 2006 in respect of assets that are and expressed on the balance sheet in future value terms. measured on the basis of deemed cost under NZIFRS. On transition to NZIFRS, and consistent with the long lead time between raising and expected utilisation of the provision The effect upon transition to NZIFRS on 1 July 2006 is to (estimated mine life at the point of transition to NZIFRS was increase Retained Earnings by $2,891,000; and eliminate 21 years), the amount of provision has been appropriately the Asset Revaluation Reserve balance of $2,891,000. discounted and restated in present value terms thereby (ii) Intangible assets recognising the material impact of the time value of money on On transition to NZIFRS Pike River has undertaken an this obligation. exercise to review and ascertain the extent to which items The effect is to reduce Mine Development Assets by of expenditure previously capitalised within Mine Develop- $458,000 at 1 July 2006, by $524,000 at 31 Decem- ment Assets represent separately identifiable and measurable ber 2006 and by $639,000 at 30 June 2007. Similarly, intangible assets. Reclassification of items focussed primarily Provisions have been reduced by $458,000 at 1 July 2006, on whether the cost incurred contributed or formed part of a by $519,000 at 31 December 2006 and by $633,000 at physical (tangible) asset. 30 June 2007. The difference between the adjustments Based on the review undertaken Pike River has reclassi- represent the unwinding of the recognised discount which is fied certain costs as intangible development assets. The charged to the profit and loss. effect of this is that Intangible Assets have been increased (v) Employee benefits to $3,436,000 as at 1 July 2006; to $3,724,000 as at 31 Pike River provides equity-settled, share based compensa- December 2006; and to $4,158,000 as at 30 June 2007. tion arrangements to its key management personnel and A corresponding reduction in Mine Development Assets has all employees. In accordance with NZ IFRS 2 Share-based been recognised reflecting the reclassification of the relevant Payment, Pike River is required to recognise as an expense items of cost. the fair value of the employee services received in exchange (iii) Convertible notes for grant of the share based compensation over the period Convertible notes issued by Pike River are accounted for in which the compensation is earned with a corresponding under NZIFRS as compound financial instruments reflecting adjustment to equity. that there is both a financial liability (i.e. obligation to make The effect is to increase Share Capital by $6,000 at 1 July interest payments) and an equity component (i.e. conver- 2006; $62,000 at 31 December 2006; and by $219,000 at sion feature) inherent within the instrument. On transition 30 June 2007. to NZIFRS the financial liability and equity component have been separately classified, recognised and measured in accor- (vi) Loans and borrowings dance with NZ IAS 32 Financial Instruments: Disclosure and Under previous NZGAAP loans and borrowings were rec- Presentation. The financial liability arising has been valued ognised at cost. On transition to NZIFRS, interest-bearing with reference to the fair value of a similar stand-alone debt borrowings are now recognised initially at fair value less instrument that does not contain any conversion features. attributable transaction costs. Subsequent to initial recogni- The effective discount received upon issue (being the differ- tion, interest-bearing borrowings are stated at amortised cost ence between the coupon on the stand-alone debt instrument with any difference between cost and redemption value being and the coupon on the convertible notes) is unwound over the recognised in profit or loss over the period of the borrowings life of the convertible notes on an effective interest rate basis. on an effective interest basis. Borrowing costs are accounted for in accordance with note 3(m). The effect of application of NZ IAS 32 upon transition is to reduce Convertible Notes at 30 June 2007 by $9,524,000 The effect of this is to decrease both Loans and Borrow- and increase Share Capital by $9,524,000 to recognise the ings and Mine Development Assets at 30 June 2007 by equity component of the convertible note issue. The effect $285,000. of unwinding the discount at 30 June 2007 is to reduce

30 PIKE RIVER COAL LIMITED Half Year Report for the six months Ended 31 DeceMber 2007

(d) Reconciliation of profit/(loss)

Previous Effect of NZIFRS Previous Effect of NZIFRS Notes NZGAAP transition NZGAAP transition

In thousands of dollars Six months ended 31 December 2006 Year ended 30 June 2007 Revenue (i) 668 (668) - 102 (102) - Administrative expenses (ii) (434) (57) (491) (881) (213) (1,094) Operating profit/(loss) from operating activities 234 (491) (779) (1,094)

Finance income (i) - 668 668 - 102 102 Finance expenses (6) (4) (10) - (11) (11) Net finance costs (6) 658 - 91

Profit/(loss) before income tax 228 167 (779) (1,003) Income tax expense (107) (107) 122 122 Profit/(loss) for the period 121 60 (657) (881)

(e) Notes to the reconciliation of profit/(loss) sheet method’ and a deferred tax asset is recognised only where Material adjustments arising on transition to NZIFRS referred to it is probable that future taxable profits will be available to utilise in the previous table are set out below. these losses.

(i) Revenue/Finance Income In accordance with note 3(n) no deferred tax assets are Amounts previously disclosed as Revenue have been restated recognised as, pending first coal production, it is not yet as Finance Income to the extent that they meet the definition sufficiently probable that future tax benefits will be available to of Finance Income as described in note 3(m). utilise these temporary differences and unused tax losses.

(ii) Administrative Expenses (g) Reconciliation of statement of cash flows Under previous NZGAAP, Pike River did not account for There is no impact on the cash flows of Pike River as all share-based payment transactions. On transition to NZIFRS adjustments arising on transition to NZIFRS are non-cash related. Pike River is required to adopt the recognition and measurement requirements of NZ IFRS 2 Share-Based Payment particularly in regards share-based payment transactions 20. Contingencies undertaken with key management personnel in the Pike On 27 November 2007, Pike River terminated the TSA with WCCC River ESOP. for non-fulfilment of the financing condition as set out within the TSA.

The effect of accounting for these transactions at fair value Under certain indemnities given in or for the purposes of the TSA, is to increase Administrative Expenses by $6,000 at 1 July WCCC and its proposed subcontractors are entitled to receive 2006; $62,000 at 31 December 2006; and by $219,000 payments of $1,674,000 with respect to capital and other at 30 June 2007 to reflect the value of the employee ser- expenditure incurred prior to termination. Pike River has accrued vices provided during that period. these costs as at 31 December 2007.

(f) Income tax WCCC has further alleged that Pike River unlawfully terminated Under previous NZGAAP, deferred tax was recognised on all the TSA and WCCC and/or its proposed subcontractors may claim timing differences using an income statement method. In respect entitlement to other alleged losses, costs or expenses incurred by of unused tax losses, a deferred tax asset was recognised when them prior to, or as a result of, termination and as at balance date there was virtual certainty of future taxable profits. have advised a claim of approximately $2,000,000 in addition to the indemnities already provided for above. Pike River’s and its legal In accordance with NZ IAS 12, Income Taxes, deferred tax is advisers view is that the TSA was lawfully terminated. calculated on all temporary difference arising using a ‘balance

31 Pike River considers that the WCCC has certain obligations to pay Pike The rights issue closes on 6 March 2008 with allotment of new River profits that may arise upon the sale of ship engine(s) which are shares and receipt of funds (estimated at $58,089,000 - being no longer required following termination of the TSA. While Pike River gross share proceeds of $60,000,000 less estimated costs of considers that recovery of these monies is contractually provided for $1,911,000) to occur on 13 March 2008. within the TSA there is currently insufficient certainty around both the The issue of shares under the rights issue has been fully quantum and timing of any profits arising for Pike River to account for underwritten by McDouall Stuart Group Limited as the lead this contingent asset as at balance date. underwriter and New Zealand Oil & Gas Limited, Gujarat NRE Given the inter-relationship of the contingent asset and contingent Limited and Saurashtra World Holdings Private Limited. The liabilities claims, Pike River considers the ultimate outflow of any purpose of the underwrites is to ensure that Pike River raises material economic resources in relation to the TSA to be unlikely. the full amount of $60 million being sought (subject to the underwriting arrangements being terminable in certain market The Grey District Council (‘GDC’) have requested Pike River to related circumstances). consider compensation for a sum of up to $1,300,000 for port design and other costs incurred in relation to the Greymouth port (b) Convertible bond issue infrastructure. Pike River continues to enjoy good relations with GDC In conjunction with the rights issue, Pike River has also entered and will take this into account when considering and resolving any into a conditional agreement to issue up to USD$30 million outstanding issues of a legal or other nature. (equivalent to approximately NZD$40 million) of convertible bonds to Liberty Harbor LLC (an investment fund which is part of Goldman Sachs Asset Management). 21. Commitments On 27 November 2007 Pike River entered into a long term Coal The convertible bonds will: Transportation Agreement (‘CTA’) with Solid Energy New Zealand • bear interest at 6.75% Limited (‘Solid Energy’). Under the terms of the CTA, Pike River has • be convertible to ordinary shares at the election of the bond- committed to certain minimum annual charges which are payable over holder at any time after issue at a conversion premium of 30% the life of the CTA. to the rights issue share price • be repayable in cash three years after issue to the extent they remain unconverted 22. Subsequent events Subsequent to the interim balance sheet date Pike River has The convertible bond issue will not have to proceed in the event announced a $100 million funding package to complete development that the full $60 million is not raised via the rights issue. Subject of the Pike River coal mine and to fund operations until steady state to this condition being satisfied, it is currently anticipated that the hydro mining is achieved. This funding package comprises two convertible bonds will be issued and funds received on, or around, funding tranches. 6 March 2008.

(a) Renounceable rights issue No other significant events have occurred since the interim As set out in the New Zealand Investment Statement and balance sheet date that would materially affect these condensed Australian Prospectus dated 29 January 2008, Pike River intends interim financial statements. to raise $60 million by way of a renounceable rights issue of 66,666,667 new shares at an issue price of $0.90 per new share on the following basis: • To existing shareholders on the basis of 1 new share for every 3.201893445 fully paid shares held on 8 February 2008 • To existing convertible noteholders on the basis of 1 new share for every 3.201893445 fully paid shares they would have held if their convertible notes were to be converted into shares on 8 February 2008

32 Auditors’ review report

To the shareholders of Pike River Coal Limited (‘the Company’)

We have completed a review of the condensed interim financial statements on pages 14 to 32 in accordance with the Review Engagement Standards issued by the New Zealand Institute of Chartered Accountants. The condensed interim financial statements provide information about the past financial performance of the Company and its financial position as at 31 December 2007.

Directors’ responsibilities The Directors of the Company are responsible for the preparation of condensed interim financial statements which give a true and fair view of the financial position of the Company as at 31 December 2007 and the results of its operations for the six month period ended on that date.

Reviewers’ responsibilities It is our responsibility to express an independent opinion on the condensed interim financial statements presented by the Directors and report our opinion to you.

Basis of opinion A review is limited primarily to enquiries of Company personnel and analytical review procedures applied to the financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Review opinion Based on our review, nothing has come to our attention that causes us to believe that the condensed interim financial statements on pages 14 to 32 do not give a true and fair view of the financial position of the Company as at 31 December 2007 and the results of its operations for the six month period ended on that date.

Our review was completed on 26 February 2008 and our opinion is expressed as at that date.

Wellington

33 Corporate Directory

Directors Registered Shareholder Information For company information and Head Office contact the Company J Dow Chairman For information on number of G Ward Level 7 shares or options held, hold- Telephone R Meyer 111 Customhouse Quay ing statements and changes + 64 4 494 0190 T Radford of address contact the share Facsimile PO Box 25 263 D Agarwalla registrar: + 64 4 494 0219 Wellington A Jagatramka New Zealand Shareholders are S Nattrass encouraged to receive Telephone New Zealand company announcements + 64 4 494 0190 Computershare Investor directly via the internet. Management Services Limited Facsimile Level 2 Register at: www.pike.co.nz Gordon Ward, BBS, CA (NZ) + 64 4 494 0219 159 Hurstmere Road refer to “Shareholders CEO and Managing Director Email: Takapuna Section” under “Electronic Peter Whittall, MBA, BCE [email protected] Private Bag 92119 Reports”. (Mining - Hons) (Australia) North Shore City 1,129 investors have elected General Manager, Mines Auckland to receive reports electroni- Auditors New Zealand Paul Bywater, BBS, CA cally to date. Financial Controller KPMG Freephone (NZ) KPMG Centre 0800 467 335 135 Victoria Street Telephone Wellington + 64 9 488 8777 New Zealand Facsimile + 64 9 488 8787

Australia Computershare Investor Services Pty Limited GPO Box 52 Melbourne Victoria 8060 Australia

Freephone (Australia) 1800 501 366 Telephone + 61 3 9415 5000 Facsimile + 61 3 9473 2500

34 www.pike.co.nz