UK Coal in fundraising drive to bolster finances

Sep 17 2009 by Iain Laing, The Journal

THE UK's biggest coal producer has moved to bolster its finances ahead of a scheme to prolong the life of two of its deep mines.

UK Coal, which supplies around 15% of all coal burned in the UK and has opencast sites across Northumberland and County Durham, unveiled details of a £100m City fundraising, which it hopes will reduce debt and put it in a position to finance a major investment programme.

It wants to extend the working life of its Kellingley and Thoresby deep mines in Yorkshire and Nottinghamshire to around 2019 and 2017 respectively, as well as further develop its Daw Mill colliery in Warwickshire.

The company said it had insufficient headroom under current banking facilities for its requirements for 2010, including its investment programme. Net debt stood at £190m at the end of June.

UK Coal told shareholders: “It became clear to the directors that the renewal of the group’s banking facilities on attractive terms would require the group to raise additional equity funding.”

The company’s finances have been put under strain by long-term contracts requiring it to sell coal at low, fixed prices. At the same time, production costs have risen above inflation and the company has faced output difficulties at certain mines.

The legacy contracts are due to end in 2011 and have been replaced with new supply deals with nearby power stations.

The placing and offer of new shares is priced at a discount of 37% to the company’s share price on Tuesday night. Peel Holdings, which owns 28% of the company, supports the capital raising programme.

The group’s fourth mine at Welbeck in Nottinghamshire is due to cease operation next year after the last of its reserves have been mined.

Investment at Kellingley and Thoresby is expected to cost £110m and involve the opening of new seams by the first quarter of 2010.

At Daw Mill, which recently achieved its fastest two million tonnes of output, money will go towards improving the reliability of output.

The company is also one of the UK’s largest brownfield site property developers, owning 43,500 acres of land across the UK.