20th Jul 2005 07:01
UK Coal PLC20 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 toKellingley Colliery, Orgreave and the former Prince of Wales colliery site inYorkshire on Thursday 21st and Friday 22nd July. In line with best practice, andahead 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 June2005 will be announced on Wednesday 7th September 2005. Trading update As previously announced, despite good progress on the operational initiatives toimprove performance and higher average selling prices, the first six months ofthe financial year were affected by lower mining output. This resulted from theunplanned face gap at Daw Mill, the closure of Ellington in January, completionof coaling at four surface mines and lower production in certain collieriesduring 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 monthsended 30th June 2005 of around £30.0 million on sales of approximately £164million after profit on the disposal of property of approximately £4.5 millionand net rental income of approximately £1.4 million. Problems with methane gas and difficult ground conditions in the currentdeveloped coal panel at Harworth Colliery have lead to the decision to mothballthis operation following the completion of the current coal face. The profitfigures quoted above are before allowance for the impairment of Harworthcolliery's assets which may give an additional non cash charge. They are alsobefore any additional charge for redundancy which may result if employees cannotbe 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 inrespect 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 milliontonnes) against production of 4.6 million tonnes (2004: 7.2 million tonnes)(seenote 1). Unit income rose to £1.32 per gigajoule (2004: £1.17 per gigajoule) asthe Company's long-term contract prices start to reflect higher internationalcoal prices. Contract re-negotiations have been concluded with key major customers. At theend of June 2005, total coal under contract to 2010, including an estimate ofsales to non Electricity Supply Industry markets, was 38.4 million tonnes withaverage 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 anddependent 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 facemoves and the unplanned face gap at Daw Mill announced in April. Combined, theestimated impact of these outages was 1 million tonnes, about half of this atDaw Mill. As previously announced, the Company also suffered from excess methane gasliberation at Harworth Colliery halting production for a period in January andFebruary. This has also caused disruption to production in the second quarter. Operating improvements have produced benefits to negate some of the impact ofthe outages, delivering tangible benefits in both working practices and costcontrol. Total deep mine unit costs on the reduced output levels, excludingestimated exceptional losses of £12 million relating to force majeure eventsannounced 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 coalingleaving 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 pergigajoule). Whilst no new planning approvals were received, a total of 3 sites containing2.7 million tonnes have been submitted to Public Inquiry on appeal and, subjectto approval, would be available to start extraction in 2006. The Company, whichhas a land bank containing up to 100 million tonnes of coal, has submittedplanning applications for a further four new sites containing 4.0 million tonnesof reserves. We hope to start production on these sites in 2006. Property Rental income on business parks has continued to grow and existing buildings atAsfordby and Whitemoor are now almost fully let. New leases agreed in the firsthalf year in respect of the Business Parks and commercial properties haveincreased the annual rent roll by £0.4 million. We have submitted planningapplications for business park use in respect of all the former Selby mines andhave an agreed Masterplan to add a further 400,000 sq ft of accommodation on ourAsfordby site. If planning permission is granted these sites will total some 300acres. Rent reviews have been carried out in respect of agricultural land (which isheld for surface mining purposes) and a survey is being carried out to assessfurther development opportunities. Development properties at Orgreave, Prince of Wales, Waverly and other sitestotalling 1,250 acres are the subject of master planning or specific planningapplications. Significant progress is being made in all areas. An additional 140acres of former colliery and surface mine land received planning approval in thefirst 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 afterappropriate development or receipt of planning approval. An independent property valuation is currently being carried out, the results ofwhich are expected to be published with the interim results. This is expected toshow a material increase from the valuation carried out in 2002 and updated in2004. Power Generation Harworth Power, UK COAL's power generation subsidiary with 32 MWe of installedmethane power generation capacity, has identified opportunities to submitplanning applications in respect of former colliery and surface mining land forthe erection of up to 40 wind turbines with a capacity of 80 MW. Theapplications are currently being progressed and will be determined over the nexttwo years. Harworth Power is further developing its generation capacity with theaddition of renewable generation capacity utilising vegetable and other organicwaste oils. International Accounting Standards In a separate announcement, UK COAL has today restated its audited results andfinancial position for the year ended 31st December 2004, and its restatedfinancial information for the 6 months ended 30th June 2004, in accordance withInternational Accounting Standards and International Financial ReportingStandards. Outlook After installing new faces at all deep mines with the exception of Welbeck, UKCoal should enjoy consistent production from its coal faces for much of thesecond half. Only Welbeck and Kellingley have scheduled moves in the second halfand both relate to coal faces where a significant amount of development hasalready been done. Management actions to address operational issues are already starting to delivertangible benefits. However, three collieries, Harworth, Rossington and Welbeck,remain under review, a process undertaken to improve financial returns toacceptable levels. Low production levels at Harworth Colliery has continued due to unexpectedextremely difficult conditions encountered in the developed coal panel currentlybeing worked. Following experience on this face, it is considered unlikely thatfurther reserves can be extracted from the current coal seam. Harworth Colliery has significant potential further reserves in an alternatecoal seam and we are currently investigating ways of reducing the cost base ofthe mine substantially without full closure to maintain access to these reservesshould it be economically viable to do so. It is likely that the decision to cease mining at Harworth following extractionof coal from the current face will result in the impairment of the carryingvalue of the assets of this mine. Rossington Colliery has moved to an advancing mining process following the lossof a developed area of coal in 2002. This advancing face is performing at levelswhich are insufficient at the current time to support further investment incontinued coal production. The management and workforce are currently looking atways of improving this before a final decision is made on Rossington's future. Welbeck Colliery is performing well following the review process and currentoutput levels have improved to a level which justifies further investment in thedevelopment of coal reserves. Output should continue to rise and will improveagain when the next retreat coal face starts production later this year. The surface mining business continues to be actively engaged in securing newplanning consents and we are optimistic this will yield new permits. We willcontinue to seek planning to exploit our considerable reserve base. This willbenefit output in 2006 and beyond. Our property business is making good progress with significant additional valuepossible should planning permission be granted in respect of the manyapplications currently being processed. We have identified opportunities to expand our power generation business throughwind, methane and other renewable sources and will be submitting planningapplications 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 beavailable on the Company's website (www.ukcoal.com) from that date. Enquiries:Gavin Anderson & Company 020 7554 1400Ken CroninMichael TurnerFergus Wylie Note 1 Production - 6 months to June H1 2005 H1 2004 (mt) (mt) Ongoing CollieriesDaw Mill 0.7 1.4Harworth 0.3 0.5Kellingley 1.0 0.3Maltby 0.4 0.4Rossington 0.2 0.2Thoresby 0.8 0.4Welbeck 0.5 0.4Sub Total - ongoing collieries 3.9 3.6Selby Complex . 2.1Other closed mines 0.1 0.3Total Deep Mines 4.0 6.0Surface Mines 0.6 1.2Total Production 4.6 7.2 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Harworth Gp