Russians join £1bn deal to reopen pit

New power station to use clean coal technology Eric Barkas City Editor THE giant Russian coal producer Kuzbassrazrezugol (KRU) has teamed up with Richard Budge in a near-£1bn venture to reopen Hatfield colliery and build a "clean coal" power station close to the mine.

KRU is paying about 36m for shares giving it a controlling stake in Powerfuel, the company set up by Mr Budge to develop Hatfield, near Doncaster.

It will invest 74m in the mine and is prepared to pay some 800m to construct the power station.

The Russians bought almost all the shares from Mr Budge and Powerfuel management who are putting the proceeds back into the company, bringing total investment in the mine up to 110m.

The deal gives KRU 51 per cent of Powerfuel and Mr Budge and management 49 per cent. It values the company at some 70m.

Mr Budge, the former chief of RJB Mining and UK Coal, originally planned to float Powerfuel on the stock market.

A listing was due last week but – as revealed in Business Post – it was cancelled just days before. At the time, Mr Budge was said to have received a better offer than the terms extracted from the City.

Certainly, given that the float would probably have valued the company at 56m, the Russians would appear to have paid more per share and/or allowed management to retain a bigger stake.

The power station was said to have made the difference – something confirmed yesterday by Mr Budge, who said of the Russians: "These people have a very keen interest in seeing it developed."

It was unlikely the City would have allowed the company to raise 800m until Hatfield was producing coal – a date pencilled in for September next year.

Hatfield was closed in 2004 when the High Hazel seam became exhausted. Powerfuel bought the colliery and the surrounding land.

It has rights to an estimated 27m tonnes of recoverable coal beneath the land. Mr Budge says total recoverable coal could reach 100m tonnes, to which only Powerfuel has access. That could be enough to keep the mine going for 40 years.

Reopening Hatfield could eventually create 400 jobs. The current plan is to drive beneath High Hazel to the Barnsley seam and begin extracting coal. Powerfuel expects to be producing 2m tonnes by 2010.

Mr Budge said the company had Government approval for the power station, which would run on coal from the mine and be the first in Britain to use coal gasification technology. That produces hydrogen gases from the coal that are emitted as water vapour.

It is also planned to capture carbon dioxide emissions for sale to North Sea oil companies, whose rigs use the gas to push out oil.

"A new zero emissions power station is our intention," Mr Budge says. Coal is becoming more attractive as an energy source because of the soaring price of gas and oil and worries over security of their supply. But greenhouse gas emissions are a factor and if coal is to make a comeback it is likely to rely on clean coal technology.

Mr Budge will continue as chief executive of Powerfuel and run Hatfield with his management team. KRU will have strong representation on the company's board.

KRU is Russia's second biggest coal producer and one of the world's top 10 coal exporters. It supplies 3m tonnes a year to the British market.

It has one deep mine and 13 opencast mines in south-west Siberia, giving it reserves of some 2bn tonnes. It employs 25,000 people and produced 41.3m tonnes of coal in 2004, the last reported year.

Powerfuel is its first major direct overseas acquisition. General director Mikhail Abyzov said: "We look forward to working with Richard Budge and the Powerfuel team in developing Hatfield."