Record reserves of coal give boost to ATH

The Doncaster-based mining group yesterday said after a "difficult year" which saw profits and coal production fall, its growing coal reserves and renewed focus give it grounds for optimism.

Publishing its first results since former chief executive Tom Allchurch and finance director Steven Beaumont bought out its regeneration arm in a private equity-backed venture, ATH said its proved reserves of coal stand at a record 6.1m tonnes.

It has planning permission for two new Scottish surface mines, Netherton and Duncanziemere, adding 4m tonnes to its reserves and taking its total reserves to 8.6m tonnes.

"We see some significant earnings growth going forward as some of the older contracts work out of the system," said executive chairman David Port.

"Selling the group's regeneration business... has reduced the volatility of the group's earnings."

The group was hit by heavy rainfall last winter, followed by snowfall and freezing temperatures, which slowed production and delivery, forcing it to a first-half loss.

ATH said it did well to recover from "one of the most challenging (years) in the group's history", and sales for the full-year were 1.79m tonnes, compared with 1.82m tonnes a year earlier.

While its average selling price ticked up 2.8 per cent to 43.70 per tonne during the year, ATH has been held back by legacy contracts set at lower prices.

Representing 40 per cent of its sales, these have reduced its ability to capitalise on increasing coal prices, which hit 70 per tonne at the end of November. These con

tracts will work through in 2012 and 2013.

"With the benefit of hindsight we are probably sitting here wishing we had not (committed to legacy contracts)," said Mr Port. "We entered into these contracts in good faith thinking we were getting a good deal at the time.

"But things changed massively in world markets. We are in a commodity trade and the price is being driven by what is happening in China and the Far East."

ATH said it is close to finalising a new contract with a major electricity generator at a price closer to the market level.

ATH's former managing director Alistair Black, who has stepped up to chief executive, said: "We are confident with the year so far. Although we've had some effect from the weather, we are very pleased with the progress we have made."

ATH sold its regeneration business for 6.5m in cash in July, with total proceeds possibly rising to 17m over a seven-year period.

"The board looked hard and long at the regeneration business," said Mr Port. "When we bought it we thought we would be able to produce a steady stream of contracts that would be very profitable and provide a steady flow to the business."

However, he said after initial success with Grimethorpe, the former division encountered planning delays with Langton.

"It hit earnings over two years by around 4m," he said. "We started to look overseas and whilst a number of people were making warm noises, getting an actual signature on a contract was proving very difficult.

"Developing the business to its full potential would have required significant levels of capital expenditure – 40m to 50m. Even if we could have raised that capital the dilutionary effect on our shareholders would have been huge."

Finance director Andy Weatherstone, who recently joined from fibres group Chapelthorpe, added: "We can still benefit from the upside in that business if they are successful."

The group slashed its final dividend by more than two thirds to 2p per share, which it blamed on the 14m cost of opening its new surface mines. Mr Port said giving shareholders "a little pain" this year was better than having to rely on bank debt if the year does not go to plan. Net debt fell 4.9m to 34.5m. Its shares edged up 1.72 per cent to 59p.

Analyst Charles Kernot at Evolution Securities said: "ATH's final results were in line with our expectations although net debt has not fallen as far as we had expected following the sale of the regeneration business." Evolution sees sales hitting 93.8m this new financial year, with profits rocketing to 8.8m.

"ATH Resources has seen a change in management and strategy and looks modestly attractive," added Mr Kernot.

Longest belt in Europe

ATH Resources operates the longest overland conveyor belt in Europe.

Its 12.2km (7.5 miles) conveyor belt transports coal from its Glenmuckloch opencast mine to its Crowbandsgate Rail Facility, near the town of New Cumnock in Ayrshire.

Dubbed the Lochside Runner, it was one of the largest investments in sustainable infrastructure for the Scottish coal industry, and was part-funded by a 2.2m freight facilities grant from the Scottish Executive.

The grant funded 29 per cent of the project's total capital costs of 7.59m.

The conveyor enables coal to be transported without travelling on public roads.

In total, 2.8 million tonnes of coal will be conveyed through its lifetime.