As rescuers struggle to locate 29 trapped miners in New Zealand, analysts are turning their attention to the equally uncertain future of the damaged mine's owner Pike River Coal Ltd. (PRC.NZ) amid a sell off in major shareholder New Zealand Oil & Gas Ltd. (NZO.NZ).

Shares in New Zealand Oil & Gas, which holds 29% of Pike River Coal, plunged 28% to 0.87 New Zealand dollars (US$0.67) when trading closed Tuesday. The abrupt drop in the share price of the company, also known as NZO, effectively renders Pike River's own shares worthless, analysts said.

"The market has discounted the value of Pike River on the NZO balance sheet at these current levels," said Nigel Scott, a broker at Craigs Investment Partners.

Earlier, the company's chairman John Dow told Dow Jones Newswires that Pike River has insurance in place to cover business interruptions and trauma, without giving further details.

At its own request, trading in Pike River's shares in Wellington and Sydney is suspended indefinitely in the aftermath of the disaster, which marks the latest in a series setbacks for New Zealand's largest listed mining company. Not least a NZ$39 million New Zealand dollar loss for the financial year ended June 30 as higher-than-expected expenses and repeated delays hit production targets at its damaged mine where rescuers still haven't located trapped miners.

"It is possible that the suspension could remain in force for a number of months given the seriousness of the incident and a promised government inquiry," said Macquarie Equities Research in a note. Macquarie now has a neutral rating on the stock down from outperform due to the uncertainty. "Effectively we have removed our recommendation."

The Pike River coal mine, deep in the rugged Paparoa Ranges about 25 miles northeast of the coastal town of Greymouth, has been plagued by a series of setbacks since its seam was first tapped in 2008. A rock fall that damaged its main ventilation shaft last year, coupled with tough geographic conditions have complicated efforts to bring the mine into full production and pushed up costs to about NZ$280 million, compared with initial estimates of NZ$207 million, according to filings.

The mine sold in February its first 20,000-ton shipment of prime coking coal used for steel production to customers in India raising hopes amongst investors that it was finally turning a corner towards achieving its annual potential of producing 1 million tons of coal from the Brunner seam, which holds 58.5 million tons of the black rock. This helped Pike River raise NZ$90 million in fresh funding with New Zealand Oil & Gas also providing NZ$25 million of short-term working capital, the company has disclosed.

Macquarie warned that Pike River could become worthless as a company because of the disaster.

Before last week's mine collapse the company was already under pressure after it slashed its production forecast by half for the year to June 2011. The company also pushed back its full production target by a further six months. India's Saurashtra World Holding Private Ltd. and Gujarat NRE Coke Ltd. (512579.BY) are the other main shareholders in the company, owning 5.5% and 7.1% respectively.

-By Rebecca Howard, Dow Jones Newswires; 64-4-471-5990; rebecca.howard@dowjones.com
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