Troubled UK Coal may split operation into two

The Doncaster-based group yesterday announced fresh plans to restructure the business, including closing the pit in the West Midlands with the loss of up to 800 jobs, unless it can cut costs and increase output drastically.

The company said it wants to “isolate risk” at each of its working three deep mines which include Thoresby in Nottinghamshire and Kellingley in Yorkshire.

The most likely option is believed to be dividing its operations into two separate companies – one housing its vast estate of former mining land, and the other containing its three deep mines and six surface mines.

This could see investors left holding shares in two companies.

A spokesman said: “The UK Coal team and management will keep all options open which are in the interests of shareholders.”

UK Coal also revealed its restructuring could result in dilution of shareholders’ stakes. It is understood current and former miners could be handed equity in the company or resulting companies, as UK Coal battles to fund its pension obligations.

Shares in UK Coal yesterday crashed 28 per cent, closing down 8.25p at 21.25p.

The company split its mining and property operations in the summer of 2010, but retains both under the UK Coal Plc banner.

“The group believes that this restructuring will provide a stable platform in the medium term for the group’s mining and property businesses and will achieve best value in the group for its shareholders,” said the company yesterday.

Ahead of a possible formal split of the listed company, UK Coal is separating its deep mines into individual entities, lumping its surface mines together, and putting its renewable energy business into its Harworth Estates property arm. The company has already created separate websites for the divisions, each with a different look and branding.

“This is something which should have happened years ago,” said the spokesman. “By separating the company it gives more security in the long term.

“The aim is to look at getting them into totally separate entities.”

UK Coal said it is talking to “key stakeholders” to test support for its changes, including its pension trustees, bankers, the Energy Department, the Coal Authority and power stations.

“All stakeholders have approached the discussions constructively and the board believes these parties will support the company’s restructuring initiative,” it said.

UK Coal added it has been talking to Lloyds Banking Group over debt facilities which expire in July, and is confident of signing facilities until the end of 2013.

The company yesterday started consultation on closing Daw Mill, as first revealed by the Yorkshire Post in December, because production there is about 175,000 tonnes behind budget.

It needs to boost Daw Mill production to more than 40,000 tonnes a week from its current 20,000 level, said the spokesman.

It has suspended developments for mining beyond the end of 2013, although added it could extend the mine’s life but “only under a lower risk operating mod- el”.

Daw Mill has caused repeated problems for the group, including a four-month ‘face gap’ in 2010 when nothing could be mined. That cost £75m and drained most of the £100m raised through a rights issue.

The spokesman said the restructuring also overrules a recently-agreed pay and terms deal with unions at Daw Mill.

“Everything is back into the mix as our cost base is still not low enough,” he said.

“At Daw Mill the production levels have really crippled the finances and cash flow and we are in a different place.

“It’s being left firmly in the hands of the workforce and management.

“If they can hit these targets – more than doubling production and maintaining this going forward – then Daw Mill may go beyond 2014.”

Analyst cuts profit forecast

Analyst Chris Millington at UK Coal’s joint house broker Numis Securities slashed his 2012 pre-tax profit fore- cast.

He cut it from £44.7m to £32.7m, with earnings per share falling from 15p to 10.9p.

He said the restructuring suggests a split of the business.

“In our view this could ultimately lead to UK Coal splitting the individual operating businesses, thereby removing the risk of one part of the business damaging the wider group,” he said.

He put the company’s target price under review “until clarity over the future of the business improves”.