Legacy contracts and fuel costs impact ATH

Alistair Black - ATH Chief Executive
Alistair Black - ATH Chief Executive
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COAL miner ATH Resources said it fell to a £5.8m annual loss as high fuel costs and tough geology squeezed margins, but insisted it is making progress on achieving better prices for its coal.

The Doncaster-based surface miner sold 1.67m tonnes of coal in the year to the start of October, seven per cent less than the 1.79m tonnes a year earlier.

Revenues increased seven per cent to £84.2m from £78.3m, as ATH’s average selling price rose 15 per cent to £50.43 a tonne. The losses compared with £4m profits a year earlier.

ATH is working through “legacy contracts” which tie it in to selling coal at lower than current market prices. These legacy contracts make up 32 per cent of its sales, and ATH said they “continue to constrain performance”.

“We decided that come hell or high water we were going to get out of these legacy contracts,” said chief executive Alistair Black. “We will stick to that strategy.”

The first of its legacy contracts falls away at the end of March 2012, and the second in 2013, and ATH said average selling prices will continue to improve this financial year.

To satisfy these contracts quickly the company has prioritised mining “higher quality coal at lower mining ratios”.

“We decided to be more selective in the reserves that we were digging,” said Mr Black. “High ratio and low quality coals, we were leaving them behind as it was just not cost-effective.

“The one good thing about the whole industry is it can probably sell its output twice over for the next three years.” ATH suffered as unexpectedly poor geology at its Glenmuckloch and Muir Dean sites caused a £4m writedown of work in progress.

The miner was also hampered by high gas oil costs, which surged 28 per cent over the year and added another £4m to its costs. It has also had to pay more for tyres, with prices increasing about 30 per cent over the year, because of a rubber shortage.

Despite higher costs and capital investment of £10.6m, ATH cut net debt by £3m to £31.5m thanks to cash generation.

It recently renegotiated and extended its banking facilities until May 2013.

Shares in the miner closed down 6.6 per cent at 31.75p, shedding 2.25p.

The company did not report full annual results as expected because of a delay getting credit insurance. ATH is bound to provide local authorities with an insurance bond every time it opens a new site or extends an existing one. However, it said the number of bond insurance providers has reduced in recent weeks, forcing it to seek another provider.

Mr Black said the bond insurer’s withdrawal was a symptom of “tightening credit generally”, rather than a company-specific issue. “We are confident that we can get the support we require,” he said.

Asa Bridle, analyst at house broker Seymour Pierce, said: “With pricing still constrained by the old legacy contracts and nearly £11m spent on capital projects, we believe that the £3m reduction achieved in net debt (to £31.5m) should be seen as positive progress.

“The new financial year brings first mining at Ducanziemere and the end of the first legacy contract, both reasons for cheer. However, with high oil prices looking set to persist we believe margin improvement is going to be tempered further and we reduce our pre-tax profit forecast by £1.4m to £2.1m for the current year.”

Digging into history of ATH

ATH Resources was founded in 1998 when it acquired the rights to operate the Skares Road mine in Ayrshire later buying the site.

It bought the Garleffan mine in 2003, became a public company in 2004 when it listed on the Alternative Investment Market (AIM). In June 2005 the group bought two new surface sites, Grievehill and Glenmuckloch in Scotland, for £18m.

In May 2006 it acquired Doncaster-based A Ogden & Sons, a coal recovery, land remediation and regeneration business.

In July 2010, the group sold the regeneration business to RecyCoal.