Trading Statement
UK Coal PLC
20 July 2005
20th July 2005
UK COAL PLC
Trading Update and Analyst Visit
UK COAL PLC ('UK COAL' or the 'Company') is hosting a visit for analysts to
Kellingley Colliery, Orgreave and the former Prince of Wales colliery site in
Yorkshire on Thursday 21st and Friday 22nd July. In line with best practice, and
ahead of entering its close period, the Company is issuing the following update.
It is anticipated that the interim results for the six months ended 30th June
2005 will be announced on Wednesday 7th September 2005.
Trading update
As previously announced, despite good progress on the operational initiatives to
improve performance and higher average selling prices, the first six months of
the financial year were affected by lower mining output. This resulted from the
unplanned face gap at Daw Mill, the closure of Ellington in January, completion
of coaling at four surface mines and lower production in certain collieries
during the planned equipping of six new coal faces in the period to June.
The Board currently anticipates reporting a loss before tax for the six months
ended 30th June 2005 of around £30.0 million on sales of approximately £164
million after profit on the disposal of property of approximately £4.5 million
and net rental income of approximately £1.4 million.
Problems with methane gas and difficult ground conditions in the current
developed coal panel at Harworth Colliery have lead to the decision to mothball
this operation following the completion of the current coal face. The profit
figures quoted above are before allowance for the impairment of Harworth
colliery's assets which may give an additional non cash charge. They are also
before any additional charge for redundancy which may result if employees cannot
be redeployed elsewhere within the group.
Due to reduced production, net debt has increased by £36 million to £85 million,
including leasing and hire purchase agreements but excluding balances held in
respect of insurance requirements and subsidence security funds.
Coal stocks held amounted to 369 thousand tonnes (2004: 997 thousand tonnes).
Sales and Contracts
Sales volumes in the first six months were 4.8 million tonnes (2004: 7.4 million
tonnes) against production of 4.6 million tonnes (2004: 7.2 million tonnes)(see
note 1). Unit income rose to £1.32 per gigajoule (2004: £1.17 per gigajoule) as
the Company's long-term contract prices start to reflect higher international
coal prices.
Contract re-negotiations have been concluded with key major customers. At the
end of June 2005, total coal under contract to 2010, including an estimate of
sales to non Electricity Supply Industry markets, was 38.4 million tonnes with
average proceeds across all years (in 2005 prices) ranging between £1.31 and
£1.40 per gigajoule. These prices are subject to inflation at full RPI and
dependent upon the out-turn of international coal prices.
Deep Mines
UK Coal installed new faces at six of its mines in the first half of 2005,
working through 32 weeks of planned non production at five mines during face
moves and the unplanned face gap at Daw Mill announced in April. Combined, the
estimated impact of these outages was 1 million tonnes, about half of this at
Daw Mill.
As previously announced, the Company also suffered from excess methane gas
liberation at Harworth Colliery halting production for a period in January and
February. This has also caused disruption to production in the second quarter.
Operating improvements have produced benefits to negate some of the impact of
the outages, delivering tangible benefits in both working practices and cost
control. Total deep mine unit costs on the reduced output levels, excluding
estimated exceptional losses of £12 million relating to force majeure events
announced in January, were £1.50 per gigajoule (2004: £1.45 per gigajoule).
Surface Mines
Surface mine output in the period reduced as four sites completed coaling
leaving two sites in production. Total output was 570 thousand tonnes (2004:
1,183 thousand tonnes) and unit costs were £1.28 per gigajoule (2004: 1.03 per
gigajoule).
Whilst no new planning approvals were received, a total of 3 sites containing
2.7 million tonnes have been submitted to Public Inquiry on appeal and, subject
to approval, would be available to start extraction in 2006. The Company, which
has a land bank containing up to 100 million tonnes of coal, has submitted
planning applications for a further four new sites containing 4.0 million tonnes
of reserves. We hope to start production on these sites in 2006.
Property
Rental income on business parks has continued to grow and existing buildings at
Asfordby and Whitemoor are now almost fully let. New leases agreed in the first
half year in respect of the Business Parks and commercial properties have
increased the annual rent roll by £0.4 million. We have submitted planning
applications for business park use in respect of all the former Selby mines and
have an agreed Masterplan to add a further 400,000 sq ft of accommodation on our
Asfordby site. If planning permission is granted these sites will total some 300
acres.
Rent reviews have been carried out in respect of agricultural land (which is
held for surface mining purposes) and a survey is being carried out to assess
further development opportunities.
Development properties at Orgreave, Prince of Wales, Waverly and other sites
totalling 1,250 acres are the subject of master planning or specific planning
applications. Significant progress is being made in all areas. An additional 140
acres of former colliery and surface mine land received planning approval in the
first half year.
Property proceeds in the first half year was £8.2 million (2004: £1.9 million).
This reflects the disposal of land following the extraction of value after
appropriate development or receipt of planning approval.
An independent property valuation is currently being carried out, the results of
which are expected to be published with the interim results. This is expected to
show a material increase from the valuation carried out in 2002 and updated in
2004.
Power Generation
Harworth Power, UK COAL's power generation subsidiary with 32 MWe of installed
methane power generation capacity, has identified opportunities to submit
planning applications in respect of former colliery and surface mining land for
the erection of up to 40 wind turbines with a capacity of 80 MW. The
applications are currently being progressed and will be determined over the next
two years. Harworth Power is further developing its generation capacity with the
addition of renewable generation capacity utilising vegetable and other organic
waste oils.
International Accounting Standards
In a separate announcement, UK COAL has today restated its audited results and
financial position for the year ended 31st December 2004, and its restated
financial information for the 6 months ended 30th June 2004, in accordance with
International Accounting Standards and International Financial Reporting
Standards.
Outlook
After installing new faces at all deep mines with the exception of Welbeck, UK
Coal should enjoy consistent production from its coal faces for much of the
second half. Only Welbeck and Kellingley have scheduled moves in the second half
and both relate to coal faces where a significant amount of development has
already been done.
Management actions to address operational issues are already starting to deliver
tangible benefits. However, three collieries, Harworth, Rossington and Welbeck,
remain under review, a process undertaken to improve financial returns to
acceptable levels.
Low production levels at Harworth Colliery has continued due to unexpected
extremely difficult conditions encountered in the developed coal panel currently
being worked. Following experience on this face, it is considered unlikely that
further reserves can be extracted from the current coal seam.
Harworth Colliery has significant potential further reserves in an alternate
coal seam and we are currently investigating ways of reducing the cost base of
the mine substantially without full closure to maintain access to these reserves
should it be economically viable to do so.
It is likely that the decision to cease mining at Harworth following extraction
of coal from the current face will result in the impairment of the carrying
value of the assets of this mine.
Rossington Colliery has moved to an advancing mining process following the loss
of a developed area of coal in 2002. This advancing face is performing at levels
which are insufficient at the current time to support further investment in
continued coal production. The management and workforce are currently looking at
ways of improving this before a final decision is made on Rossington's future.
Welbeck Colliery is performing well following the review process and current
output levels have improved to a level which justifies further investment in the
development of coal reserves. Output should continue to rise and will improve
again when the next retreat coal face starts production later this year.
The surface mining business continues to be actively engaged in securing new
planning consents and we are optimistic this will yield new permits. We will
continue to seek planning to exploit our considerable reserve base. This will
benefit output in 2006 and beyond.
Our property business is making good progress with significant additional value
possible should planning permission be granted in respect of the many
applications currently being processed.
We have identified opportunities to expand our power generation business through
wind, methane and other renewable sources and will be submitting planning
applications where appropriate to develop this area of the business.
Analyst visit
A copy of the presentation to be given to analysts on 22 July 2005 will be
available on the Company's website (www.ukcoal.com) from that date.
Enquiries:
Gavin Anderson & Company 020 7554 1400
Ken Cronin
Michael Turner
Fergus Wylie
Note 1
Production - 6 months to June H1 2005 H1 2004
(mt) (mt)
Ongoing Collieries
Daw Mill 0.7 1.4
Harworth 0.3 0.5
Kellingley 1.0 0.3
Maltby 0.4 0.4
Rossington 0.2 0.2
Thoresby 0.8 0.4
Welbeck 0.5 0.4
Sub Total - ongoing collieries 3.9 3.6
Selby Complex . 2.1
Other closed mines 0.1 0.3
Total Deep Mines 4.0 6.0
Surface Mines 0.6 1.2
Total Production 4.6 7.2
This information is provided by RNS
The company news service from the London Stock Exchange
UAWMUPAPUB