Heads of terms agreed on UK Coal restructure

UK COAL today said it had made “significant progress” on a major restructure that would leave its mining business bank debt free.

The company owes its customers and its banks £138.3m and has a funding deficit to its pension funds of approximately £430m.

UK Coal described the restructuring as a “highly complex process” and one that required agreement from its pension funds, the pensions regulator, and its bank lenders, which include Lloyds and Barclays.

A non-binding heads of terms agreement has been reached with the pension trustees, and an agreement in principle with power generators, which would see a combined £90m support package for UK Coal covering the period to the end of 2015.

This would leave the Doncaster-based group’s mining business debt free and with an affordable pension deficit reduction scheme. 

Each of its mines would also be restructured into separate legal entities to reduce the risk of any one mine’s failure “from bringing down all mines”, chairman Jonson Cox said.

The group’s pension trustees will also invest £30m in UK Coal’s property business to allow “the release of the latent undeveloped value in the property portfolio”. In exchange, they will receive a direct stake of 75.1%.

Mr Cox, who also warned that the group’s Daw Mill mine could close by 2014 if its poor record could not be turned around, said: “UK Coal’s board believes that a restructuring creates a sustainable platform, allowing us to continue to produce coal to supply power stations and get full value from the property portfolio for the group. 

“There is still much work to be done and there remain significant challenges and risks to completing the process.

“Without a restructuring, the group will remain exposed to significant risk on its financial headroom and covenants. 

“With the ever present challenge of operational difficulties, there is a significant risk to the continuation of the mining business, jobs, and the local economies around our mines in the absence of creating additional headroom.” 

For the six months ended June 30, UK Coal saw total group revenue fall 23% to £198.3m as sales of coal fell.
 
Poor performances at Daw Mill and Thoresby reduced total production to 3.3m tonnes.
 
The group posted an pperating loss before non-trading exceptional items of £6m, compared to a profit of £35.2m over the same period last year.

Mr Cox added: “Our first half year results for 2012 show a disappointing performance, caused by the poor Daw Mill performance in Q1 and the weakening coal price seen in Q2.

“These factors were mitigated by an improved consistency of production in Q2. We have continued to progress with the recovery of Daw Mill’s 32s face, and are in the process of re-commissioning the face.
 
“The production problems and the risks of operating Daw Mill in its current structure, when combined with the pension deficit and the level of bank and generator debt, led the board to conclude that a restructuring of the business was necessary to secure a stable platform for UK Coal and its stakeholders.”
 
UK Coal employs around 2,500 people with its headquarters being based at Harworth Park. The group is Britain’s biggest producer of coal.