UK Coal said it needs more time to restructure, as the falling price of coal and poor production heaps more pressure on the debt-laden mining business.
Chairman Jonson Cox yesterday told shareholders at its annual meeting in Sheffield it continues exploring options to reduce its £875m pension burden.
He told investors it has been considering entering “at least part” of its retirement obligations into the Pension Protection Fund (PPF), confirming a Yorkshire Post story last week.
The company also revealed the £20.3m sale of its Harworth Power arm, which generates electricity from waste methane, to cut debt. Net debt stood at £154m at the end of March.
Its “ever-increasing” pension deficit, a throwback to when the UK’s mining industry employed tens of thousands, had ballooned to £430m by the end of 2011 from about £250m in 2009.
The company had hoped to finalise its restructuring in time for the AGM, but yesterday it said: “Further work is needed over the coming weeks to explore the implications for the company and its economic stakeholders.”
The group is balancing the numerous demands of parties including staff, unions, pension trustees, banks, shareholders, the Coal Authority, Government, regulators and power generating customers.
It confirmed a reduction in its pensions liabilities had been explored with the PPF.
“The company’s proposal to the pension fund has been that it should seek entry for its defined benefit schemes, at least in part, into the Pension Protection Fund,” said Mr Cox.
“We are pleased to report that our banks, generator customers and the Coal Authority have responded positively to our proposals and the company believes that appropriate agreements could be reached, subject to all parties playing their part.
“Discussions with the Pension Fund and Pensions Regulator have also made considerable progress.” However, he said another, unspecified option is also being explored – “an alternative package of short and medium-term financial measures which do not involve a compromise of members’ benefits”.
The company declined to say what this package could involve, but said it could set the company on an even keel financially, “whilst also allowing realisation of the inherent value in the mines and undeveloped property portfolio”.
First quarter output from its mines totalled just 1.4m tonnes, significantly below the 2.1m tonnes during the same period a year earlier.
This reflected tough geology at Daw Mill deep mine in the West Midlands, where production has since recovered.
However, UK Coal said falling coal prices continue to hamper the company. Fellow Doncaster-based miner, ATH Resources, recently said a 21 per cent fall in coal prices since the start of the year has hit trading and profits.
“Coal prices remain at a low level representing a further challenge to the performance of the mines and all mines have been set additional efficiency targets,” said UK Coal.
Its planned sale of Harworth Power to Red Rose Infrastructure Ltd is dependent on shareholder approval. The business generates power from methane produced at Kellingley, Thoresby, Harworth and Stillingfleet mines.
It has 14 gas engines with combined capacity of 26 mega watts. The electricity generated is either used at UK Coal sites or exported to the grid.
In 2011, Harworth Power reported operating profits of £2.4m on revenues of £5.5m. Red Rose is managed by clean energy asset manager Capital Dynamics Clean Energy and Infrastructure.
“The disposal forms part of the company’s plan to improve operational and financial performance and strengthen its balance sheet, in part through an asset realisation programme,” it said.
“The proceeds will therefore be used to reduce borrowings and improve the working capital position of the company.”
All resolutions were passed at the AGM.