UK Coal shares up on return to profit

The Doncaster-based company announced a complex plan to separate its mining operations from its lucrative brownfield property interests.

The plan is designed to isolate the financial risk of each deep mine from the group as a whole.

Deep mining can be difficult to predict and the group has been hit by problems at its Daw Mill mine near Coventry.

Chairman Jonson Cox said: “The current structure, whereby all mines are in the same corporate entity, can quickly result in one mine putting the entire group at risk.”

Mr Cox said there are no plans to split into two companies. Both mining and property will continue to operate under the same UK Coal umbrella.

In addition to the unpredictability of the deep mines, the group is also having to cope with a £430m pension deficit and £55m in debts.

UK Coal will now seek the agreement of shareholders, its banks, the pension funds and its customers for the restructuring.

Asked if the group will close its deep mines, which include Kellingley in Yorkshire, if it did not get their agreement, Mr Cox declined to answer.

He referred back to the chairman’s statement which read: “The board believes that this plan is the only practicable way to create a sustainable structure for the group...Without this support there would be a significant risk to the group, and, in particular, to the continuation of the mining business.”

The group hopes to report back on negotiations at the AGM in June.

The plan involves a substantial reduction of the pension and other liabilities. A minority equity stake in the mining business and a percentage of the proceeds from future property sales will be offered in return for a reduction in the pension scheme.

UK Coal believes its substantial brownfield property portfolio could raise future funds for the company once the land is developed. The plan is for the property company to take over the group’s bank debt and an agreed liability as part of a compromise on the pension scheme.

Funds will need to be raised from shareholders to cover bank debts while the development process realises value.

UK Coal reported pre-tax profits of £58m for 2011, compared with a £124.6m loss the previous year. The group benefited from a 25 per cent rise in coal prices and a four per cent increase in production.

It is still considering closing Daw Mill, which employs 800 people, by early 2014 when current coal panels have been exhausted.

The group’s shares closed up 1.75p at 15p last night.

Numis Securities analyst Howard Seymour said: “Full-year results demonstrated that new management is having a positive operational impact. However, this must take a back seat to the frank view from the chairman that fundamental restructuring of the group is essential.”

Mr Seymour said the restructuring looks “sensible”, but it is not possible to predict its impact or outcome.

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