ATH aims to develop its surface mines with £2m royalty sale fee

The Doncaster-based group, one of the UK's largest coal producers, said it would spend the latest 2m royalty payment from the sale of the regeneration arm on developing its surface mines.

The news came yesterday as the group told shareholders at its Annual General Meeting in Leeds that recent trading has been in line with expectations.

It said that while December's snow caused some shipment disruptions, an improved mix of sales and lower production costs largely offset any impact.

ATH chairman David Port said: "The bad weather experienced in December 2010 caused only minimal disruption to production, although it did result in a delay of some shipments to customers following the cancellation of a number of trains and snow related road closures."

He added that the group continues to improve operating efficiency and reduce costs.

But he warned that the Glenmuckloch site, which reported geological issues at the end of the last financial year, continues to cause concern.

"The impact of this together with the recent dramatic rise in the price of gas oil will, if it continues to rise, put operating margins under pressure for the remainder of the year," said Mr Port.

ATH's shares closed down six per cent last night, a fall of 4.25p to 64.5p.

He said that the opening of the Netherton site is progressing well and is on schedule to start coal production of coal in the current quarter.

"Netherton is now anticipated to exceed its production targets for the full year," said Mr Port.

Development of the Duncanziemere site is planned to start later in the year.

The group said that net borrowings are in line with expectations.

ATH said it has secured a 150,000-tonne extension to an existing market price related contract with Scottish Power.

Deliveries are due to commence in October 2011.

The group, which is keen to replace old contracts with better priced deals, said it is on schedule to fulfil the final tonnage of its three remaining legacy contracts.

The first two will end next year and the group anticipates that they will be replaced by new contracts at significantly higher prices.

ATH Resources recently won a new sales contract to supply EDF Energy, one of the UK's biggest home and business energy suppliers, with 350,000 tonnes of coal.

The company said the coal will be supplied at prices linked to international market indices.

Supply started immediately and will end in December 2012.

Alistair Black, chief executive of ATH Resources, said: "This contract is an important development for ATH as it will increase average sales prices at the same time as the group continues to supply the remainder of its fixed price contracts.

"The existing fixed price contracts that the group has in place will start to be phased out from March 2012."

ATH believes it is on a much more stable footing after selling its regeneration business RecyCoal last year. The group said that its growing coal reserves and renewed focus are giving it grounds for optimism.

"We see some significant earnings growth going forward as some of the older contracts work out of the system," said Mr Port. "Selling the group's regeneration business... has reduced the volatility of the group's earnings."

ATH sold the assets of ATH Regeneration last July.

The proceeds from the sale could total 17m over a seven-year period, including 6.5m in cash on completion plus royalties.

The assets were sold to RecyCoal, a company that is funded by a substantial investment fund and its partners and has amongst its shareholders Tom Allchurch and Steve Beaumont, who were the group's chief executive and finance director.

In October 2006, the group started work on its new Laigh Glenmuir surface mine.

A big player in energy market

ATH Resources was listed on the AIM market of the London Stock Exchange in June 2004.

It operates three surface coal mines, Skares Road, Glenmuckloch and Muir Dean in Fife.

The group is one of the largest producers of coal in the UK, producing around two million tonnes a year.

Coal is used to generate around a third of the UK's electricity and the group holds coal supply contracts with four of the UK's main electricity generating companies.

The group started operations in 1998 when it acquired the rights to operate (and subsequently acquire) the Skares Road mine. In 2005 it funded two new surface sites, Grievehill and Glenmuckloch.