Blackfriar: Dig deep and you'll discover good news at UK Coal

The Doncaster miner has been dogged by production issues and costly face changes over the past year.

Adding to its hefty net debt burden of 257m, this has kept UK Coal's share price depressed, giving it a current market value of only about 120m.

So worrying are these issues that UK Coal admits they cast a doubt over its going concern status. It needs to refinance next year, and if it cannot do so, its future will be in jeopardy.

But despite the losses and production issues, things are actually a bit brighter for the UK's biggest coal miner than they first appear.

Finally the group's deep mines are producing coal as they should, and for once, UK Coal has maintained its full-year production guidance. Agricultural land sales are also in the pipeline, and should achieve 30m to 40m to cut net debt.

Legacy contracts, which have previously tied the miner into selling coal at lower prices despite the market's recovery, are now coming to an end and UK Coal is benefiting from higher prices. There's also no escaping the underlying demand for coal, which despite the Government's green energy ambitions, will play a big part in meeting this island's energy needs for years to come.

Charles Kernot, an analyst at Evolution Securities, sees the group making a profit in the second half, with a 15m profit in 2011. "As long as production comes through, everything else will follow," he said.

But as the past two years have shown, coal mining can be an unpredictable business. UK Coal will need a steady period of uninterrupted mining, plus good news on land sales and refinancing, to convince the market the worst is behind it.

n Shareholders weighing up Peter Gyllenhammar's mandatory 5.1m bid for fibres firm Chapelthorpe are caught between a rock and hard place.

Chairman Leslie Goodman's recent letter to shareholders, reluctantly advising them to do as he plans to and take up the paltry offer, was hardly a ringing endorsement. Holding ground and refusing to sell will leave them minority holders in a company largely at Mr Gyllenhammar's mercy, he warned.

If the value Swedish investor gets his way and de-lists the Bradford group, they'll lose the protection listed status affords. Selling up now could be their only chance to turn their stakes into cash, he added.

But Mr Goodman, who is likely to lose out when Mr Gyllenhammar shuffles the board, fired a final a parting shot.

"The offer price falls short of a price that fully recognises the recent trading performance and longer term prospects of Chapelthorpe and an appropriate level of premium for a change of control," he wrote.

In short, Mr Gyllenhammar is picking up Chapelthorpe for a song, and there's not a jot you can do about it.

Both Mr Goodman and Mr Gyllenhammar's letters included reasons why they think Chapelthorpe's share price has been so low in recent years. The price has barely reflected improvements in trading such as the recent return to profitability. Mr Gyllenhammar blamed the unloved mature markets it sells into, raw materials and other costs, but missed a key point. Blackfriar believes the overhang created by Mr Gyllenhammar's and Hanover Investors' hefty stakes was a vital factor keeping Chapelthorpe's share price artificially low, as their combined 55 per cent holding deterred other investors.

Mr Gyllenhammar waited patiently until Hanover got fed up and was forced to sell its stake to reinvest its cash. He even claims his bid is "very helpful" to shareholders.

But Blackfriar believes his approach leaves investors with little to choose from – shareholders are damned if they do and damned if they don't.