RICHARD BUDGE - the man dubbed King Coal after his firm RJB Mining bought British Coal before he was eventually ousted as chief executive - has returned to the industry. Deputy Business Editor Sheryl Moore reports.
Almost six months to the day after Richard Budge “stepped down” as chief executive of the UK’s biggest coal producer, he announced his return to the coalface. Last week, Budge beat off his former firm and the giant US energy group Enron to become owner of the struggling Hatfield colliery with a bid of 5m.
On the surface it may appear to be a major coup for Budge – beating off the big boys. It could also herald a new dawn for the South Yorkshire pit which last month went bust.
But why at the age of 54 would Budge want to take on an ailing pit and invest his own cash into the venture? To get Hatfield back on its feet will cost at the very least 5m. The pit has also encountered geological problems and will need significant investment to develop new reserves. And considering that Hatfield is one of only three surviving deep pits in Britain that are not owned by UK Coal, what scope is there for expansion?
Is Budge’s return a case of blind arrogant self-belief – after all, this is the man who has frequently been criticised for his abrasive manner and domineering attitude especially in relation to the company that he named after his own initials?
Martin Potts, mining analyst at Williams de Broe said of Budge’s return to the industry: “Surprising, especially if he’s putting in his own money. Why he would want to take on Hatfield, I can’t imagine. However, if he can get the finances right, access the new reserves and produce coal at a reasonable cost then maybe he’s got a chance.”
Certainly Budge has got his work cut out. At present, the colliery, which began life in 1911, is mining the High Hazel seam – a relatively thin seam which is expensive to cut. It will take millions of pounds of investment to access the Barnsley seam where there is up to 100 million tonnes of coal. Attempts by Hatfield’s previous owners to access the seam failed when funds ran out and they were forced to call in the liquidators. But while Budge has his critics, he certainly has supporters – it was the Coal Authority and the Government that chose his new firm Coal Power as the preferred bidder for Hatfield. It was a move welcomed by the National Union of Mineworkers which said as far as it was concerned Budge put the best offer on the table. Pat Carragher, secretary of the British Association of Colliery Management, said that he’s a long term player and if anyone can prove the critics wrong, it’s Budge.
Part of the 5m buyout package is coming out of his own pocket. Additional funds are from the “usual borrowings” and Budge says finance will be in place for the Government’s October 5 deadline. But how confident is the irrepressible Budge about the colliery’s future? “I’ve got faith in the coal industry,” he says. “The colliery has strategic access to about 100 million tonnes of coal. Phase one will be starting work again on the High Hazel seam. Within months work will begin accessing the Barnsley seam. Hatfield is an important mine and I have faith in the investment, new equipment and the support of the staff.”
And what about the critics? “Clipstone in Nottinghamshire was the first pit I re-opened after it was closed by the British Coal – it’s still working today. I re-opened Rossington, though since I’ve left RJB I hear they’ve been on strike for six weeks. Most of the pits I re-opened in 1994 are still operating with the exception of one which ran out of reserves. Hatfield will re-open on October 5 and has a viable future.”
In the present climate Budge also hasn’t chosen a bad time to make his comeback. Coal prices have risen sharply over the last year. Coal sales into the UK market have increased by an average of 20 per cent in each of the past three years. Power station prices for coal are now 35 a tonne, compared to a low 18 months ago of 22.50. Leaving the events of last week aside, sterling has finally weakened against the dollar. As a result, domestic coal prices are more competitive as generators can no longer afford to pay for foreign coal.
The dash for gas – all the rage in the early and mid-Nineties – has calmed down and the market appears to be having a renewed interest in coal. Gas reserves in Europe have decreased – something which Budge long ago predicted: “If you focus on one energy source it’s bound to eventually run low, that’s why we are experiencing higher gas prices.” And since his departure from RJB he has lobbied both UK and European governments for more balanced energy portfolios. The European Commission has recently stated that Europe must maintain its coal reserves. Finally, a recent Government energy review indicates that, for the short term at least, no new nuclear energy plants will be built.
So for the moment, at least, coal is fairly sexy and consumption is increasing. Admittedly, it’s a cyclical commodity and its rejuvenation has been helped by the recent rise in oil prices. And if the price of a barrel of oil falls to below $10, no doubt the price of coal will go with it. But mining analysts are, for the short to medium term, pretty positive.
But what about Budge? Certainly on his past pedigree he’s a force to be reckoned with. The son of a master builder, Budge was born in Boston, Lincolnshire, in 1947. An ex-racing driver, he won grudging admiration from the mining unions after he went underground and worked night shifts. He led the buyout of RJB Mining in 1992 and two years later bought the bulk of the country’s remaining deep mines for 814m from the Conservative government. In 2000, after stopping production at two collieries, he secured RJB a share of a 171m aid packet for the UK coal industry.
His sudden departure from RJB Mining – which was subsequently renamed UK Coal – was rumoured to be on the back of boardroom disagreements – something that Budge has never confirmed or denied. During a good period in the mid-90s Budge and RJB could do no wrong, but the company’s shares have since fallen to a fraction of their former value. And it is believed that pressure from disgruntled shareholders forced his departure. It is also believed that Budge received a pay-off of more than 700,000, which included 18 months of his 320,000 salary, a 25 per cent bonus and pension entitlements.
Budge is reported to have no hard feelings towards the firm which was “magnanimous” in releasing him from contractual obligations that would have prevented him running Hatfield. Hatfield is a very small fish in a big pond. “In terms of the UK industry, Hatfield is largely irrelevant,” said Potts, of Williams de Broe. The maximum it could produce is maybe 1.5 million tonnes per annum against a UK market total of 60 million tonnes – excluding coking coal. And given that the only other deep mines are Tower in Wales and Longannet in Scotland – what scope is there for expansion?
Charles Kernot, mining analyst at BNP Paribas said: “The outlook for the coal industry is fairly buoyant. And if Budge can emulate the success of Tower in Wales which is a worker co-operative, then he has prospects. But Budge has always struck me as more of a marketeer than as a mining engineer.”
On the expansion side, Budge appears to have other ideas. “I recently read that the chief executive of UK Coal said the firm is planning to mothball some of its pits – if they want to relinquish the licences then who knows. You can never rule out anything.” And where Budge is concerned you certainly can’t. After leading the buyout of RJB, he oversaw one of the most turbulent periods in the coal industry’s history. And, despite his critics, Budge is a man who has built up a formidable reputation for getting the job done.
Dave Price, editor of independent mining analyst Coal UK, has said of Budge: “The thing that sticks out about him is the amazing way he pulled politicians round to his requirements, whether they were Tory or Labour. Whenever RJB was in trouble he brought them round, he masterminded it.”
Pat Carragher is another who knows Budge and is not surprised as his reappearance. “There were doubts about Budge when he arrived at RJB but he went on to prove himself committed to the industry. Part of his disagreements at RJB was about strategic reserves at Thorne, which is near to Hatfield, and is being run on a care and maintenance basis. If it’s one thing that Budge has, it’s vision.”
Only time will tell whether Budge will regain his King Coal title – something which he claims to hate – nevertheless for the workers at Hatfield they’ll be hoping his reign will be long and victorious.