UK Coal begins to eat into its debt mountain

UK Coal miner worker operating a shearer
UK Coal miner worker operating a shearer
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BRITAIN’S biggest coal miner said production has been steady as it begins making progress on reducing its mammoth debt burden.

The Doncaster-based group, which has been beset by mining problems in recent years, said production in the first three months of the year was “steady and in line with expectations” at 2.1 million tonnes, more than double the one million tonnes a year ago.

Of this, 1.6 million tonnes was mined from its deep mines and 0.5 million tonnes was from its surface mines.

Under the leadership of new executive chairman Jonson Cox, the former managing director of Yorkshire Water, the group has prioritised overhauling its mining performance and cutting debt.

Last month it owned up to “deep-rooted” problems and three years of “unacceptable performance” as it reported pre-tax losses of £124.6m for 2010, bringing cumulative losses over the past three years to £269.3m.

Mr Cox, who replaced chief executive Jon Lloyd, pledged to “get back to economic health where a return is made on each tonne of coal produced rather than a loss”.

The group said the installation of new faces at Kellingley deep mine in West Yorkshire and Thoresby deep mines in Nottinghamshire has progressed well and both are now ready.

It has also extended the life of the current panel at Daw Mill in the West Midlands by several months to offset the risk of delayed installation of its new panel.

UK Coal said Harworth Estates, its property business, continues to make progress on selling surplus land. It sold 1,500 acres of agricultural land in the first quarter for £10.5m, including 590 acres at Stockley Hill in Lancashire and 279 acres at Sandy Lane in Staffordshire.

The proceeds were used to pay down debt, which stood at £220.7m at the end of the quarter. That compares with £242.4m at the end of 2010.

UK Coal said major shareholder Peel Holdings has extended the maturity of a £10m loan to July 31, 2012.

UK Coal has been unable to capitalise on soaring coal prices because it is tied to selling coal at lower prices, but Charles Kernot at house broker Evolution Securities said in time the group should benefit from high coal prices and new contracts.

Mr Kernot said the group’s performance is “on track”, adding “if this performance is replicated during the forthcoming quarters, (this) could result in production over and above our expectations from these mines”.

He said: “We believe that changes at the top mean that UK Coal is on the path to recovery – albeit that debt is likely to remain high until 2012.

“New management with operating experience of mining and property have introduced sweeping changes at the top of UK Coal. This is now feeding through into the operations and the swift dismissal of an underperforming mine manager at the Daw Mill colliery shows that management will use its sharpened teeth.”