UK Coal and Hargreaves Services hold talks over merger of miners

UK Coal, which owns Yorkshire's biggest pit at Kellingley, is holding talks with Hargreaves Services, which owns Maltby colliery near Rotherham.

The talks are at a very early stage and may or may not lead to a deal.

Hargreaves approached UK Coal about a possible merger that could help UK Coal's exposure to the volatile performance of its deep mines.

Earlier this year UK Coal, Britain's biggest coal mining firm, warned of further production delays after a difficult final quarter in 2009.

The Doncaster-based company was hit by a fatal accident at Kellingley last year which brought mining to a halt.

UK Coal is in the unusual position of being about to start work on new coal faces at all three of its remaining pits.

The company will begin work on a new coal face at its Daw Mill deep mine in the West Midlands in April. The deep mine has been hindered by difficult geological conditions.

It will also soon start work at Kellingley near Pontefract and Thoresby in Nottinghamshire.

The Welbeck mine in Nottinghamshire is due to close in April.

UK Coal said: "The exposure of the group to the volatile performance in its deep mines is a significant concern to the directors and mitigating the effects of this exposure, by operating improvements or structural means, is a priority."

As well as the deep mines, the group also has active surface mines in Northumberland, Bolton, Derbyshire and Leicestershire.

UK Coal bought the English coalfield assets of British Coal for 815m in December 1994 when the state-owned business was privatised.

UK Coal sold Maltby to Hargreaves three years ago for 21.5m.

Following speculation yesterday, UK Coal said it had not received a cash offer from its major shareholder Peel Holdings or any other source.

The statement was in response to a report which said Peel Holdings had rejected an approach for its 28.3 per cent stake in the group because Peel itself was working on a cash offer.

Peel is part of a consortium of shareholders that has made a takeover approach for Forth Ports.

Shares in UK Coal closed up 12.4 per cent last night, a rise of 6.5p to 59p.

Shares in Hargreaves fell 1.1 per cent, a fall of 8p to 718p.

UK Coal, 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 the death at Kelling-ley.

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

Last month Hargreaves, a power and mining group, reported surging profits despite low coal prices.

The firm, which employs more than 1,000 people in the Yorkshire region, is in the process of expanding across Europe.

Hargreaves half year revenues fell 29 per cent to 211.6m as coal prices tumbled. But pre-tax profits rose more than 20 per cent to 14.7m.

Energy and commodities – the largest of Hargreaves' four divisions – sources, processes and trades coal, selling it for use in sectors including alloy production, steam railways, home and hospital heating.

Hargreaves said it is looking forward to a period of uninterrupted mining at Maltby, which suffered during the six months as geological problems and new equipment reduced production by about 55,000 tonnes.

The company has spent more than 20m on upgrading the mine through new mining and gas capture equipment.

Hargreaves also owns the Monckton coke works near Barnsley, which is benefiting from increasing stability and rising prices.

Monckton is also gaining market share from rival plants which were

forced to close during the recession.

The disappearing mines

Before the miner's strike in 1984, Yorkshire had a total of 56

collieries.

Now Kellingley is the largest of the three remaining working pits in the region, with Maltby the second biggest and Hatfield, near Doncaster, the third.

Rossington was mothballed in April 2006.

In 1984, 15 of the collieries were in the Wakefield district, 11 in the Rotherham district, 10 in the Barnsley district, nine in the Doncaster district, six in the Selby district, three in the Leeds district and two in the Kirklees district.

Maltby has been a working mine since 1908.

Its biggest customer is the Drax coal-fired power station in Yorkshire.

Kellingley Colliery, or 'The Big K' as it has been referred to by miners for many years, is a relatively new mine which began production in 1965.

Its siting was mainly influenced by the close proximity of road, rail and canal routes.