Blackfriar: Swift resolution needed to keep lights burning

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TAKE a company with debts of £242.2m, cumulative losses of £269.3m over three years, a hefty pension scheme deficit and high costs.

Even the most masochistic of business people would consider that a challenge. That was the situation UK Coal chairman Jonson Cox faced when he unveiled his new strategy for the embattled mining group in April.

His underlying premise is to “get back to economic health where a return is made on each tonne of coal produced rather than a loss”.

The former managing director of Yorkshire Water, who helped turn around the utility following the 1995 drought, has made some progress at the Doncaster-based miner.

He reported profits of £22.1m for the first six months of the year, but said it was only the first step of a long journey.

The size of the challenge has been underlined by UK Coal’s latest, particularly immobile, hurdle. Cox recently wrote to staff warning if he can’t do a deal on working practices and pay, he may have to close Daw Mill colliery, and is drawing up plans to that effect.

UK Coal is offering staff a 4.7 per cent pay rise and a 4.7 per cent lump sum bonus in 2012.

“I am not aware of any other organisations in the current economy offering pay rises at this level, let alone companies struggling for survival,” wrote Cox to staff.

Three unions, the BACM, MPIS and NACODS, have agreed to the pay deal and National Union of Mineworkers is putting it to members.

Cox is blaming the breakdown on the Union of Democratic Mineworkers (UDM), which will not sign up to the improved pay package. In return, the UDM accuses the company of holding its members to “ransom” by threatening to close the mine.

The closure of the West Midlands mine would leave the company with just two working deep mines – Kellingley in Yorkshire and Thoresby in Nottinghamshire, dealing a heavy blow to British mining.

Cox’s strong-arm tactics are undoubtedly designed to focus minds and make staff see just how much is at stake. Blackfriar hopes it won’t come to the mine’s closure.

But this is a company at the mercy of its banks. UK Coal’s net debt still stands at £68m. As Cox’s letter made clear, it needs to re-pay £47m in generator loans, pour £20m into its pension fund and pay off £23m of past investment before it can invest in its mines or pay off further bank debt. High costs are one thing it cannot afford, so Blackfriar would not discount drastic action.

A swift resolution to this pay crisis is crucial if the company is to set itself on stable financial ground. The longer this impasse continues, the greater the risk, not just to Daw Mill’s 800 staff, but the 2,600 employed at the group and the many thousands more employed in the supply chain.

In 2010, UK Coal supplied 14 per cent of the coal mined in the UK, some five per cent of the country’s energy needs. Daw Mill is the UK’s most productive coal mine, and has reserves which could last until 2028. Britain’s industry may be a shadow of its former glory, but what remains is vital to reducing our reliance on volatile foreign imports, and ultimately keeping the lights on.

If you have a view on this email citydesk@ypn.co.uk