UK Coal back in profit but break-up looms

The Doncaster-based group plans to isolate risk at each of its three deep mines, after productivity problems at its Daw Mill pit in the West Midlands.

UK Coal said it made pre-tax profits of £58m in 2011, compared with £124.6m losses in 2010

Revenues increased to £488.2m from £351.2m.

Total net debt, excluding restricted funds but including loan prepayments, fell from £242m to £139m.

However, the deficit in its pension scheme surged from around £250m in 2009 to approximately £430m.

Chairman Jonson Cox said: “This improved performance is in line with our recovery plan, with an increase in revenue from improved production, stock reductions and realised sales price, and from our initial steps in addressing our cost base.

“Our programme to reduce bank debt, through development and sale of the property portfolio succeeded in more than halving bank debt over the year.

“However, recent operational performance at Daw Mill, the near-doubling of our pension deficit and the level of debt in the mining business have continued to highlight how much remains to be done to put the UK Coal mining business on a stable footing.”

UK Coal suggested its restructuring involves breaking up the group and dividing its liabilities.

The group said it plans to hand its bank debt to its property business, as a compromise for the pension scheme. This division would need a share issue to raise funds, said UK Coal.

Its restructuring plans for the mining business target a “substantial reduction” in its pension scheme and other liabilities. It plans to offer a minority equity stake in the mining business, plus potential future earnings from the property business, in return for a reduction in its pension scheme.

UK Coal said it is putting these plans to Lloyds Banking Group, Barclays, the pension funds, its customers, the Department for Energy and Climate Change and the Coal Authority.

“Under this new structure, the board believes that the value inherent in the mining business and value in the brownfield property portfolio can be realised for the benefit of all stakeholders,” said the company.

“The board believes that this plan is the only practicable way to create a sustainable structure for the group.

“We recognise that this will require significant co-operation and support from all of those with an economic interest in the group. Without this support there would be a significant risk to the group, and, in particular, to the continuation of the mining business.”

UK Coal is still considering Daw Mill, which employs 800 staff, by early 2014 when current coal panels will have been exhausted.