Output warning as UK Coal set for big losses

The Doncaster-based group, which is expected to report hefty losses for 2009 and has already revised its production forecasts lower several times, also announced the appointment of a new mining director.

The company, which supplies around six per cent of the country's needs for electricity generation, has struggled to meet output forecasts over the past year because of geological problems and a death at a mine.

It owns the bulk of the former British Coal's coalfields, including Daw Mill deep mine in the West Midlands, Thoresby and Welbeck in Nottinghamshire, and Kellingley, near Knottingley, in West Yorkshire.

In November, the company forecast full-year deep mine output would be between 5.7 million and 5.8 million tonnes, which was itself a downwards revision from previous forecasts of 6.75 million and then 6.2 million tonnes.

Yesterday UK Coal said deep mine output would be at the lower end of forecasts, at 5.7 million tonnes. Surface mine output is expected to be 1.4 million tonnes, in line with previous guidance.

In October, the Health and Safety Executive (HSE) ordered the temporary suspension of mining at Kellingley deep mine, near Knottingley in West Yorkshire, following the death of mine worker Ian Cameron.

UK Coal also faces 10 charges over three deaths at two other deep mines in 2006 and 2007, in a prosecution brought by the HSE.

Production at Thoresby and Welbeck mines has been hampered by geological problems, which the group is tackling with investment.

At Daw Mill, UK Coal is about to start installing powered roof support on the next face, to prepare it for production. However, this is likely to lead to delays, the group said.

"It is expected this equipment installation will resolve the impact of current difficult geological conditions, although these conditions mean production on this new face is now expected to commence around the end of February this year, rather than in January," the company said.

It is cutting costs and extracting more coal from the existing face at Daw Mill in the first few weeks of January to mitigate the impact of the delay on working capital.

At Kellingley, the largest remaining operational mine in Yorkshire, it has faced problems mining the Silkstone Seam. After a 55m investment programme, it expects to move to the new Beeston Seam in late February, although added the specific date depends on finishing extraction of the final tonnes from the current face.

At Thoresby, access to the Parkgate seams has been hampered by poor conditions and previous workings. UK Coal plans to move to the Deep Soft Seam, and said it is on schedule to start production in March.

Evolution Securities analyst Charles Kernot, who believes UK Coal's 2009 losses could be as deep as 102.8m, reiterated his buy recommendation.

"We believe that UK Coal's mining operations will see a two-year phase of transformation from old, high-cost operations to new, modern designed and lower-cost seams," he said.

However, analysts at Arbuthnot Securities believe further production downgrades are imminent.

"From the tone of the statement it looks likely that guidance for 2010 will be lowered when the company puts out its pre-close statement at the end of January," they said.

A UK Coal spokesman said it was too early to say whether the current cold spell will have a positive impact on the group's earnings this year.

Mining expert welcomed

New mining director Gareth Williams is expected to join UK Coal's board in February.

Mr Williams, 43, has more than 20 years' experience in coal mining, including roles with Anglo Coal, part of Anglo American plc.

He was general manager of some of Anglo's largest coal mines, he is currently head of operational performance for Anglo Coal Canada and South America.

UK Coal chairman David Jones said: "We are delighted to welcome Gareth. He has extensive coal mining experience and knowledge and an impressive track record in mine management, driving productivity with a strong safety culture.

"All of this equips him ideally to his new role with UK Coal and made him our clear choice in what was a strong list of candidates in our selection process."