Shares fall as UK Coal losses hit £94m

The UK's biggest coal miner has been hampered by geological problems at its deep mines during the move to new coal faces.

But with these production problems resolved, chief executive Jon Lloyd said the Doncaster-based group is moving in the right direction. "It's a very positive message," he said. However, shares in UK Coal fell 13.2 per cent on the hefty loss to close down 5p at 33p.

UK Coal owns the bulk of the former British Coal's coalfields, including Daw Mill deep mine in the West Midlands, Thoresby in Nottinghamshire and Kellingley, near Knottingley, in West Yorkshire. All three have now been fully ramped up, although production at Welbeck in Nottinghamshire ceased in May.

Total production in the first six months of the year was 2.7 million tonnes, down from 3.7 million tonnes a year earlier.

The group expects full-year production to be around 7.6 million tonnes, with 6 million of that coming from its deep mines. However, over the past six weeks, weekly production from its deep mines averaged 137,000 tonnes. Multiplied over a year, that would give a total of 7.1 million tonnes.

"What we have demonstrated, albeit later than we would have clearly wanted, is that we have made the transition in these three well-invested deep mines," said Mr Lloyd.

The group is focusing heavily on safety following the death of mine worker Ian Cameron at Kellingley in October and a separate case brought by the Health and Safety Executive into previous fatalities. It saw a 50 per cent reduction in the number of major injuries over the six months compared with a year earlier.

On an operating basis, UK Coal's losses in the six months to the end of June deepened to 52m. But including refinancing costs, property losses, legal and advisory fees, it fell to a 94m loss compared with an 81.5m loss a year earlier. Net debt, excluding restricted cash, is expected to be around 255m.

The group hopes to cut debt in coming weeks with the sale of assets including Blair House surface mine in Fife. It is in advanced negotiations on selling the mine, and analysts expect it to be snapped up by Scottish Resources Group, the largest surface coal miner in the UK.

Improved coal contracts are also expected to boost UK Coal's profitability in coming months as the group moves off legacy contracts and onto new or amended contracts.

"They have been a huge drag for the past five to six years," said Mr Lloyd. "We can almost touch these revenues now because the only (remaining) legacy contracts are pretty much finished. Things are looking very positive."

UK Coal is also making progress with developing its huge estate of brownfield and agricultural land. It now has total planning applications in for around 5,900 new homes and 4.4 million sq ft of employment space. Joint ventures with one or two leading housebuilders could also be around the corner, said Mr Lloyd.

It is also close to selling a third of its industrial estate, which analysts think could raise 40m.

Hargreaves Services, which owns Maltby colliery near Rotherham, last month walked away from a potential merger with UK Coal. "To an extent it was a distraction," said Mr Lloyd, but added associated costs had not been "exceptional".

Decision soon on colliery site

UK Coal expects the imminent approval of plans for a huge new homes and offices development in Waverley, between Rotherham and Sheffield.

The government recently gave Rotherham Council the final say on the two planning applications for the site of the former Orgreave colliery.

The scheme could see nearly 4,000 houses, shops and community facilities, together with 60,000 square metres of government offices.

The plans were submitted by Harworth Estates, the land arm of UK Coal, and a separate application for offices, a hotel and leisure facilities from Helical Governetz.

The Government decided not to "call in" the applications but to let Rotherham Council go ahead and grant planning consent.