Slump in coal price forces ATH to cut production level

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ATH Resources, one of the UK’s largest coal producers, said half year pre-tax losses doubled to £7m following a 28 per cent fall in coal prices since the beginning of the financial year.

The Doncaster-based miner said it will focus investment on sites that can generate cash in the current depressed market.

As a result the group will reduce production levels for as long as coal prices remain low.

ATH’s chief executive Alistair Black said the revised plan will allow the company to take advantage of any future market recovery as and when it occurs.

He added that despite the difficult background of falling coal prices, the average selling price rose by 16 per cent in the six months to April 1.

“This was achieved through the successful renegotiation of legacy contracts and alterations to the mining plan to focus on the extraction of higher quality coal,” he said.

However, this was cancelled out by increased gas oil costs, delays to extensions and higher mining ratios, which increased the overall cost of mining and reduced profit margins.

“Following the rapid fall in international coal prices, and with commodity markets forecasting that future prices will not stage any meaningful recovery in the medium term, the group has reviewed all existing and future operations with a view to concentrating investment on those sites which will continue to generate cash even in this depressed market,” said Mr Black.

ATH has been told by the Environment Agency that it will have to purchase Carbon Credits totalling £1.1m per year in July 2012 and July 2013.

ATH has lodged an application for a judicial review of the Government’s Carbon Reduction Commitment Scheme.

It added the £1.1m a year would be reclaimable if the appeal is successful. In the meantime it has had to make a £1.1m provision to cover the scheme.

The group’s performance was also hit by it having to write off £2m following problems at its Muir Dean mine in Scotland.

The incidence of old workings at the mine have increased, reducing coal production and increasing mining costs.

The reduced levels of production, together with previous delays, are expected to result in a fall in sales volumes of around 250,000 tonnes for the full year.

ATH said that comparatively inexpensive supplies of natural gas in North America and a very mild winter have led to an over-supply of coal into global markets.

US generators have either switched away from coal to gas or reduced output.

As a result, international coal prices fell by 28 per cent in the first half of ATH’s financial year.

ATH said that although there are now signs of some rebalancing of supply and demand, particularly in the North American coal fields, the continued worldwide economic slowdown has meant that coal prices are likely to remain uncertain for the foreseeable future.

The group said that while profits will be impacted significantly, the group should still be able to generate cash in the absence of any further reductions in coal prices.

With the Netherton mine now in full production, ATH said sales volumes increased to 796,000 tonnes from 706,000 tonnes last year.

The renegotiation of legacy contracts, together with improved coal quality following changes to the mining plan, meant that average selling prices rose 16 per cent to £56 a tonne.

This was despite lower demand for the group’s high priced domestic products following a very mild winter.

ATH said that its Netherton and Duncanziemere mines are in full production.

The group expects production to be around 1.6 million tonnes for the current year, with both the Netherton and Duncanziemere mines producing coal in line with expectations.

Mining costs increased to £54 per tonne from £39 per tonne.