ATH hit as rising costs bite into margins

The Doncaster-based group said that while sales volumes in its second half were significantly higher than the first half, it has taken an extra provision of £1.6m to cover future high gas oil and tyre costs.

The group’s spending on gas oil and tyres in 2011 was £6m higher than a year ago.

ATH, which operates surface mines in Scotland, said debt levels have fallen by £3m and it has renegotiated bank facilities with its existing lenders.

The group said that given the continued impact of legacy contracts and the significant increase in costs, it doesn’t plan to re-instate the dividend yet.

ATH said it will review its position on the dividend at the time of next year’s interim results.

It is due to announce annual results for the year to October 2 on December 7.

Before yesterday’s update, analysts were expecting full year pre-tax profits of £200,000 on revenues of £84.6m.

Earlier this year the group was under takeover scrutiny, but interested parties have since walked away from the talks.

In July ATH said that it was in preliminary discussions with a third party, thought to be energy group Hargreaves Services, that may or may not lead to an offer being made for the company.

Following the news it was in talks, ATH received a number of other approaches. But last month it said that none of these had progressed any further.

The opencast coal miner said that sales volumes in the six months to October 2 rose to 960,000 tonnes.

This was significantly higher than the previous six months when it reported sales volumes of 706,000 tonnes.

Average sales prices for the year increased by around 15 per cent to over £50 per tonne from £43.68 per tonne in 2010.

ATH said trading profits before exceptional items, but including the costs of the unsuccessful takeover talks, will be close to market expectations.

The group said year end coal reserves will fall from 8.6 million tonnes to 7.9 million tonnes.

ATH is hopeful that the imminent completion of the first of the three legacy contracts, which have significantly held back its profits, will result in an early return to profitability for ATH.

Profits should also be boosted by the continuing increase in average selling prices.

ATH said the new site at Netherton is now in full production and is producing coal at expected volumes and quality.

Work has also begun at a new site at Duncanziemere with production due to commence in the first quarter of the new financial year.

Muir Dean has recently secured a new extension and Glenmuckloch continues to perform in line with expectations.

ATH said the end of the second legacy contract in March 2013 should produce a “further significant” lift in earnings, matched by a step change in the group’s profits.

During the next 12 months, the group expects to apply for planning permission for another two million tonnes.

ATH has argued that the electricity consumption of its 12-kilometre conveyor should be exempt from the Carbon Reduction Commitment Scheme.

The Government has challenged the group’s decision not to opt into the scheme.

ATH said a hearing to clarify the situation is expected towards the end of 2011.

If it fails to win exemption from the Carbon Reduction Commitment Scheme, ATH expects costs to rise a further £1.4m a year in 2012, 2013 and 2014.

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

The group is one of the largest producers of coal in the UK, providing coal principally to the electricity supply industry.

It also supplies the industrial and house coal markets.

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.

Planning victory for miner

ATH Resources has won planning permission for an extension to its Muir Dean mine in Fife.

The Doncaster-based group said it will mine 0.35 million tonnes of coal from the Annfield extension.

The miner, which has been hampered by poor geology and legacy contracts, said it has to conclude a number of matters before work can start.

The extension is expected to start producing coal later this year.

Chief executive Alistair Black said: “This planning approval provides continued employment for 70 direct employees in the area and is an important contributor to the future of the ATH business as well as the local economy.”

Muir Dean is expected to finish production in 2012.

ATH operates four surface coal mines in Scotland: Skares Road and Netherton in East Ayrshire, Glenmuckloch in Dumfries and Galloway and Muir Dean in Fife.