Yorkshire coal mining groups call off talks on merger plans

Hargreaves Services, which owns Maltby colliery near Rotherham,

yesterday walked away from a potential merger with Doncaster-based UK Coal, whose deep mines include Kellingley near Pontefract.

Shares in UK Coal dropped as much as 12 per cent in early trading, but eventually closed the day up 0.6 per cent at 40.25p. Hargreaves' shares rose initially but ended the day down 1.4 per cent at 626p.

"While recognising that UK Coal has many valuable assets, (Hargreaves) does not intend to pursue such a merger," said Hargreaves in a statement.

Analysts welcomed the conclusion of talks from Hargreaves' perspective, adding it lifts a cloud which has been hanging over its share price.

On March 10 Hargreaves said it was in early talks over a possible merger with UK Coal. At the time UK Coal said it was keen to mitigate the effects its exposure to the volatile performance of its deep mines.

But on April 26, Hargreaves said there had been unavoidable delays to the start of due diligence because of UK Coal's other commitments.

That meant Hargreaves has had little over a month to probe UK Coal's books.

The Yorkshire Post understands Hargreaves lost appetite for a deal when the scale and complexity of a transaction because clear. A deal would likely have required Hargreaves to raise funds by issuing new shares, which was made more problematic as its share price dropped. Concerns over UK Coal's ballooning pension scheme deficit also helped pour cold water on the deal.

"We welcome the clarity that this brings," said Justin Jordan, analyst at RBS. "Hargreaves management have a track record of astute shareholder value accretive acquisitions.

"In addition, management are significant shareholders, so their

interests are firmly aligned with external shareholders."

Analyst Nick Spoliar at Altium Securities said the termination of

talks "removes an imponderable" for Hargreaves.

He added UK Coal's assets "doubtless still offer opportunities at some point in the future".

Under the terms of the Takeover Code, Hargreaves cannot rekindle interest within the next six months unless there is a material change to circumstances, UK Coal's board agree to it, or a third party expresses interest.

Hargreaves bought Maltby from UK Coal three years ago for 21.5m, investing millions to make it profitable. It plans to extend its life to 2025.

"With UK Coal taken out of the equation, investors will be free to focus on the strong underlying qualities of Hargreaves' business, notably its dominant position in energy services relating to coal among other energy commodities, against a background of increasingly constrained energy supply in the UK," added Mr Spoliar.

By contrast, UK Coal has struggled. It sunk to a 129.1m pre-tax loss in 2009, following problems at all four of its underground mines.

Geological problems and a death at Kellingley forced it to revise production forecasts down repeatedly and total production fell to seven million tonnes in 2009, from 7.9 million tonnes in 2008.

However, UK Coal said production at its deep mines is finally back on track after moving to new seams at Kellingley and Thoresby and a new panel at Daw Mill. It hopes to mine a total 7.6 million tonnes this year, to be sold at better prices.

UK Coal is keen to pay down debt which had risen to 236m by April. Despite a 100m fundraising last year, chief executive Jon Lloyd has admitted debt is now a "situation". "We would have preferred not to get to this level, " he said in April.

To bring down debt it plans to sell a third of its agricultural land and is in talks with major housebuilders about joint ventures – and is attracting "significant interest". It has around 12,000 acres of brownfield land.

The companies declined to comment further.

Last symbols of once mighty industry

Yorkshire's Maltby and Kellingley collieries are among the last remaining symbols of the region's once vast coal industry.

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 location was mainly influenced by the area's road, rail and canal links.