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Tragedy at Pike River Mine
How and Why 29 Men Died
By Rebecca Macfie Awa Press
Copyright © 2013 Rebecca Macfie
All rights reserved.
ISBN: 978-1-877551-94-9
CHAPTER 1
Pike dream
The right to explore the Pike River coalfield had sat for years gathering dust within the recesses of Tony Radford's complex corporate web. Nothing was going to happen unless a partner could be found with deep pockets and the reservoir of expertise and infrastructure needed to turn the thick seam underlying the rugged and precipitous Paparoa Range into a working coal mine.
No one doubted the potential importance of Pike's coal. It was an enormous untapped resource, formed from a thick mire of peat inundated by seawater, buried deeply and heated for nearly 45 million years, and then thrust upwards by the seismic forces that heave and twist at the mountainous spine of the South Island. Spanning between a high sheer escarpment to the west and the Hawera fault to the east, the seam lay 13 metres thick in places, ran six and a half kilometres from north to south, and was up to two kilometres wide.
This was no ordinary coal. It was 'beautiful' – a bright, lustrous coking coal with properties that would be sought after by international steelmakers, who rely on coke as a source of fuel for their blast furnaces, and of carbon to bond with iron to produce steel.
Pike's low ash and high fluidity made it a unique and potentially highly valuable resource – if a viable method could be found to extract it and transport it from deep in the West Coast mountains to far-flung world markets.
But Radford was no miner, and the increasingly convoluted network of companies he had built – initially in partnership with geologist Dave Kennedy – had no expertise in the highly specialised and technically challenging business of coal mining. Diminutive and socially reserved, Radford could scarcely be more removed from the raw and unpretentious West Coast townships that had prospered and declined with the fortunes and tragedies of the mining and logging industries. He was born in Palmerston North and had studied accountancy before moving to Australia and carving out a small empire of mineral exploration interests. His developing obsession was the formation of a fortress-like corporate structure to fend off would-be rivals who coveted the resources fiefdom he had built up.
Starting out in the 1970s with an Australian company called Otter Exploration NL, which merged in about 1978 with listed New Zealand firm Mineral Resources Ltd, Radford and Kennedy had by the early 1990s created a corporate labyrinth with complicated cross-shareholdings; holdings included significant controlling stakes in gold mines at Beaconsfield, Tasmania and in the Tanami desert in the Northern Territory, as well as the Martha gold mine in New Zealand's Coromandel, the Kupe offshore gas discovery in Taranaki, and the prospecting rights to the Pike coalfield.
Radford was cautious and highly intelligent. In business he was autocratic and controlling; dissent was not welcomed and those who challenged his authority didn't last long. Among the people close enough to be invited to his pleasant home in Wollstonecraft, North Sydney, he was a witty and charming friend – at least until he fell out with them, as often happened. Over the years he had earned a reputation in the business community for falling short of accepted standards of good corporate governance, and had accumulated some powerful enemies.
The licence to prospect for coal at Pike had come into Radford's web in late 1979 when geologist Terry Bates, exploration manager for Otter Minerals Exploration – a subsidiary of the Tony Radford-dominated Mineral Resources New Zealand – acquired it for the company. The presence of a thick seam of coal in the mountains inland from Punakaiki had been known about since 1911, but it wasn't until 1946 that the first geologist, Harold Wellman, set foot on the coalfield. With no road access into the formidable and isolated terrain, no one had ever attempted to mine it. Another three decades would elapse before the first commercial evaluation of the field was carried out, by Australian company Robertson Research (Australia) Pty Ltd.
In collaboration with a bright young Canterbury University geology student, Jane Newman, and two fellow PhD students, including Newman's husband Nigel, Bates undertook extensive mapping and sampling of the coal seam in the early 1980s, often enduring atrocious weather and having to bash through thick scrub on the Paparoa tops until tracks and campsites were established.
After four years of active study, including the drilling of six exploratory boreholes into the coal seam from the rugged surface, the Pike licence was put to one side. Bates got involved with the group's gold interests, and New Zealand was in the midst of political and regulatory upheaval that saw the state-owned land overlaying the Pike coalfield shifted from the Forest Service to the newly formed Department of Conservation. In 1987 the new Paparoa National Park was formed, adjacent to and partly overlaying the Pike coalfield.
The existence of the coal – and other valuable minerals – was taken into consideration when the park was being created, and only a small section of the Pike licence fell within its boundaries. However, having a landlord whose mandate was the preservation of New Zealand's indigenous flora and fauna and the protection of its places of wild scenic beauty didn't help increase the appeal of the Pike prospect to prospective mining partners.
Periodically one of Radford's executives would pick up the Pike licence and look at what could be done to extract value from it, then put it back on the shelf. In 1988 a reshuffling of Radford's empire saw the licence shifted into the folds of New Zealand Oil & Gas (NZOG), one of a clutch of companies he and Kennedy had formed in the early 1980s and floated on the New Zealand and Australian sharemarkets. It was thought that NZOG, with its focus on hydrocarbons, might be able to find a partner capable of developing and extracting value from the Pike coalfield.
But no one could be tempted. NZOG geologist Roger O'Brien and senior executive Graham Mulligan went to Japan and Korea in the late 1980s to look for 'farm-in' partners; they were about to board a plane to China to scour for potential partners there too, but Tiananmen Square had become a sea of death and trauma, and they were prevented from travelling. They talked to companies in India and Indonesia.
The only flicker of interest came from the Japanese giant Mitsui Mining. In 1992 one of Mitsui's most respected and experienced engineers, Masaoki Nishioka (known by all as Oki), was running a trial at the New Zealand government-owned Strongman underground coal mine on the West Coast to demonstrate the effectiveness of hydro mining – a method of extracting coal from the face with a powerful jet of water, which had been developed in underground mines in Japan and Canada.
One day O'Brien knocked on Nishioka's door at the Ashley Hotel, the Greymouth establishment favoured by professionals and businesspeople visiting the West Coast's major town. O'Brien's view was that the Pike coalfield ought to be developed first as an opencast mine to extract the shallower coal, with underground workings established later on when the money from early sales was flowing. He wanted to find out from Nishioka if hydraulic mining could work in an underground operation at Pike.
It was a productive meeting: Nishioka proposed drilling seven boreholes to find out more about the geology of the coalfield. Back in Japan, he secured the funding needed to pay for the work, which was done in 1993.
Nishioka concluded the coal had valuable characteristics, but recommended to the Mitsui board that it shouldn't get involved in mining at Pike. With a soaring escarpment and a national park on one side and a densely forested wilderness on the surface, access would be difficult and expensive, he advised.
There were other factors that concerned him too. The coal extracted from the boreholes contained so much methane that the gas had bubbled out of the samples. One highly experienced man commented that it was the gassiest coal he'd seen in 40 or 45 years of mining. Any underground mining operation at Pike would have to very carefully manage the methane, a gas which is explosive within the range of 5 percent and 15 percent of air and poses one of the greatest risks in underground coal mining.
Another deterrent was that the upper layer of the seam was high in sulphur, which would make it useless as a coking coal for the steel industry. Nishioka calculated that Pike would produce only about five or six million tonnes of saleable coking coal – not enough to justify the significant investment that would be required to develop the mine.
New Zealand Oil & Gas's task of finding a partner to help it develop the Pike resource wasn't helped by the low coal prices prevailing at the time. The influence of China's economic revolution had not yet filtered through to international commodity prices; the price of coking coal through the 1990s was stuck stubbornly at around US$40 a tonne. Early calculations suggested it would cost most of that to get the coal out of the ground and transport it to international markets.
By 1997, the company was running out of momentum. Nothing much was happening with Pike – although by then the company had managed to get a full mining licence for the field and O'Brien had overseen some rudimentary pre-feasibility work. There was little oil and gas exploration work going on, and the Kupe gas discovery was taking years to bring into production. The Wellington head office was shut down and NZOG, including Pike River Coal Ltd, the subsidiary company formed in 1982 to hold the Pike licence, was shifted to Sydney, where it shared offices with another of Radford's companies, Pan Pacific Petroleum.
New Zealand Oil & Gas was a shadow of its former self: gone were the grey-haired executives and geologists who had formed the company's backbone. Its long-standing exploration manager Dave Bennett had been sacked by Radford in the mid '90s. O'Brien was fed up with the lack of exploration activity and left. Graham Mulligan, the commercial general manager, had stepped down in 1994, although he remained a director. Terry Bates and Dave Kennedy, the geological brains behind Radford's wider minerals empire, had also split with Radford in the early 1990s. The company no longer had anyone in-house with geological or exploration knowledge of Pike.
Of the original Wellington-based NZOG executives only Gordon Ward, an accountant who had been hired by Mulligan in the late 1980s, moved to Sydney and remained on the staff.
Ward was from a dairy farming family. He had been an auditor for Coopers & Lybrand in Palmerston North – coincidentally, Radford's hometown – before joining the NZOG payroll. Like Radford, he was hard-working, disciplined and focused. He was a capable accountant, but to many of his colleagues his ambition exceeded his abilities. Robotic and rather colourless, he was certainly not leadership material. 'There was very little personality there. It was all business, all day,' recalls former NZOG and Pike River Coal director Peter Liddle.
As the Pike prospect had been shopped around to potential partners without success for years, it had become obvious that, to get any value out of the asset, more investment would have to be put in. But NZOG was in no mind to invest hard cash into the project – its board of directors wanted to focus on oil and gas exploration, not get sidetracked on to a peripheral project. Capital would have to be found from other investors to help pay for the work needed to progress Pike along the feasibility and regulatory pipeline.
By the late 1990s Ward had been elevated to the role of finance manager. He had no expertise in coal mining, but he picked up the challenge of securing finance and obtaining regulatory consents for the Pike project with enthusiasm. Those around him would come to call the project 'Gordon's baby'. It would catapult his career from the tedium of accounting to the entrepreneurial excitement of a brand new state-of-the-art coal mine.
The obscure coalfield on the South Island's West Coast, which few outside the small community of coal miners and geologists had heard of before, soon became the subject of headlines in the business press. A coal mine at Pike would be quickly profitable, Ward predicted in 1998.
He went off to the coal markets of North Asia and came back reporting keen interest from potential buyers. Enthusiastically at his side was consultant geologist Peter Gunn. Gunn had been interested in Pike since 1984 when, as district geologist for State Coal Mines, he had tried without success to convince his bosses to buy the licence. Brought in as an adviser by Roger O'Brien in the mid 1990s, he had produced a short marketing study that suggested a 'softly softly' approach to mine development that would enable further evaluation of the geotechnical aspects of the field and the volume of gas contained in the coal.
In late 1998 NZOG began titillating the interest of sharemarket investors with talk of a public listing of the Pike project. The public discourse was infused with increasingly ambitious numbers: back in 1993, Mitsui had calculated that a total of five or six million tonnes of high quality coking coal could be mined from Pike, but by 1998 Ward was talking of 30 million tonnes.
Consultant reports supporting the commercial and technical feasibility of developing Pike into a working coal mine started piling up. By 1998 any thought of using opencast mining methods was long gone: the notion of stripping such glorious untouched wilderness to dig out coal was certain to arouse insurmountable opposition, not only from the Department of Conservation but from a public that was increasingly interested in environmental protection. Gunn knew an opencast mine would enable more coal to be extracted 'but we considered that the environmental cost would have been too high'. Opencasting would have left a lasting impact 'and we would not have been happy with that'.
In late 1997 Gunn – on behalf of NZOG – asked New Zealand mining consultant Dave Stewart to whip up a quick desktop study of an underground mine at the Pike coalfield capable of producing 500,000 to 600,000 tonnes a year. With scanty geological information to go on,Stewart came up with a preliminary scheme within just a few weeks: he emphasised it was merely a 'first pass' report and that much more detailed investigation and exploratory drilling would be required. Stewart heard nothing more from NZOG. Two years later he found out that an Australian consultancy, Minarco, had produced, on behalf of NZOG, a 'final feasibility study' that drew on his own elementary report.
The basic mine design drawn up by Stewart – a long stone tunnel to the coal seam and extraction using a high pressure hydromining machine – was replicated in the Minarco report. But there was a key difference: Minarco predicted a rate of production of more than one million tonnes of high quality coking coal a year, double the volume assumed in Stewart's report. Not only would there be exceptional productivity at the proposed mine, according to Minarco, but it would produce a healthy 29 percent rate of return to its investors.
By then those investors included Ward's family, and senior people associated with Minarco itself. For the Pike project to make progress to the point where a wider circle of investors would be prepared to back it, Ward had needed more information, but assembling that information came at a price that NZOG, still the majority owner of Pike, didn't want to pay. The Minarco study was budgeted to cost just $100,000, but without the money to pay for it Ward suggested the consultancy take shares in Pike in exchange for a suite of studies and feasibility work. It was a sweat equity deal: investors associated with Minarco would get a 25 percent shareholding in Pike River Coal Ltd, and in return the consultancy would come up with a 'bankable' feasibility study – one with enough detail to satisfy lenders and investors – plus hand over $250,000 in cash. Minarco director Graeme Duncan, an Australian mining engineer, was one of those who took shares, along with fellow Minarco man David Meldrum. Duncan also became a director of Pike River Coal Ltd.
Duncan saw significant merit in the Pike project. During his years as a consultant he had reviewed every New Zealand underground coal mine and regarded them as rather 'low-tech' in comparison with Australian mines. By introducing reliable, high-capacity equipment and 'a more Australian-style level of management, maintenance and systems', he was confident Pike could produce twice the amount of coal per year than had been assumed in Dave Stewart's report.
Gunn was also a keen supporter of the project and remained heavily involved – analysing the geology, figuring out how coal would be transported from the remote mine to the marketplace, and collecting information on the pristine natural wilderness that overlay the Pike seam. NZOG asked him if he, too, would take shares in Pike in exchange for some of his consulting work, rather than being paid in cash.
(Continues...)
Excerpted from Tragedy at Pike River Mine by Rebecca Macfie. Copyright © 2013 Rebecca Macfie. Excerpted by permission of Awa Press.
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