Losses widen at UK Coal

BRITAIN’S largest coal miner UK Coal today reported annual pre-tax losses of £129.1m after being hit by output problems at its underground mines and also announced plans to sell agricultural assets to reduce debt.

The Doncaster-based mining firm, which also said it planned to agree a number of joint venture partnerships on its property development operations, made several downward revisions to its annual production target last year due to its underground mines’ performance.

It was also announced in March that mining group Hargreaves Services was in merger talks with UK Coal, a tie-up which could mitigate the negative effects of UK Coal’s exposure to deep mines.

Hargreaves said today that there had been “unavoidable delays” to the start of the due diligence process in relation to the merger. 

“Consequently, discussions remain at a very preliminary stage and there is no certainty that any transaction will result,” Hargreaves said.

“Hargreaves is aware of the uncertainty that these delays cause and Hargreaves remains committed to progress discussions with minimum further delay.”

For the year to the end of December 2009, UK Coal saw pre-tax losses widen from £15.6m the previous year.

Revenue was £316m, down from £392.5m the previous year.

Total production fell to 7m tonnes, from 7.9m tonnes in 2008. However, UK Coal said it expected output to rise to 7.6m tonnes in 2010 and added that its Kellingley and Thoresby mines were producing coal from new seams.

Chairman David Jones said: “2009 has been an extremely challenging year for the group. We took big strides in transitioning the production profile of our deep mining business, a transition which has been substantially completed in the current year with the commencement of production from the new seams at Kellingley and Thoresby.

“We put in place new long-term supply contracts on significantly improved terms with our electricity generator customers and added a major new customer, Scottish and Southern Energy.

“We also further strengthened our executive team with the appointment of a board level director of mining, Gareth Williams, who brings considerable international mining experience to the group.

“Together, these steps hold the potential to transform the safety, performance and profitability of our deep mining business, and we shall continue working hard to these ends during 2010 and beyond.”

Mr Jones said UK Coal’s property business had continued to perform well in progressing planning.
 
“As we have previously reported, however, our financial results for last year have been substantially affected by geological issues in each of our deep mines, which significantly reduced production volumes and did so against the background of a subdued market price for coal in Europe,” Mr Jones added.

These difficulties were exacerbated in the last quarter by equipment unreliability and failures, noting in particular the incident leading to the loss of a life at Kellingley. These geological issues continued into the current year until the new seams at Kellingley and Thoresby, and the new face at Daw Mill, have been brought into production. This has inevitably reduced first quarter production compared to the same period last year.
 
“With Kellingley now in full production in its new seam, Thoresby ramping up in its new seam and with Daw Mill having started its ramp up, we believe that the particular difficulties which have affected us over the past months are now behind us. We therefore look forward to increasing production volumes, and for the business to see the benefit of an improved market price for coal.”
 
UK Coal has increased its loan facilities by up to a further £30m.