UK Coal digs itself out of a hole

UK Coal returned to profit for the first time in four years and more than halved its debt in 2011.

The group, which is planning to close Britain's biggest coal mine, Daw Mill in North Warwickshire, saw group revenue surge to £488.2m in 2011 from £351.2m in 2010, ahead of market expectations of £481.3m, as it enjoyed higher coal prices and higher production.

The miner's average sales price per gigajoule shot up to £2.48 from £1.97 the year before. Total production for the year rose to 7.5m tonnes, in line with expectations, from 7.2m tonnes the year before.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Profit before tax also smashed forecasts, coming in at £58.0m versus expectations of £22.0m. In 2010, the group made a loss before tax of £124.6m. Earnings per share of 18.5p were well ahead of market forecasts of 7.35p, and a sharp turnaround from a loss per share in 2010 of 41.8p.

Group net bank debt was hacked to £55m at the end of the year from £141m at the end of 2010, while total net debt, including generator loan/pre-payments narrowed to £139, from £242m, as the group trousered £67m during the year from property sales at a slight premium to book value.

"Our programme to reduce bank debt, through development and sale of the property portfolio succeeded in more than halving bank debt over the year," noted Jonson Cox, Chairman of UK Coal.

"However, recent operational performance at Daw Mill, the near-doubling of our pension deficit and the level of debt in the mining business have continued to highlight how much remains to be done to put the UK Coal mining business on a stable footing," Cox advised.

The pension deficit, under the principles used by the Trustees to determine future funding, has almost doubled from around £250m at the last valuation in 2009 to around £430m.

Looking ahead, the group is confident coal still has a place to play in Britain's power generation needs, although the proposed introduction of the carbon support price scheme may reduce demand.

The UK government intends to introduce its carbon price support mechanism in April 2013. This will reduce the competitiveness of coal fired plant against other types of generation. UK Coal believes that this scheme is unnecessary as the government's proposal to introduce feed in tariffs would deliver the same result.

The shares traded at 15p, up 1.75p, in the middle of the morning trading session, having hit 15.54p earlier in the morning.

JH