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16 Jul 2009 07:00
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16Β July 2009Β
UK COAL PLC ("UKΒ COAL")
Pre-Close Trading Statement
UK Coal today issues its pre-close trading statement, together with an outlook statement for the full year, ahead of publishing its Interim Results for the six months to end June 2009 onΒ 27 August 2009.
Mining
Average realised sales price:Β Despite the significant reduction in the world coal price over the period, our average realised sales price for the first half was marginally aboveΒ ourΒ expectations at around Β£1.80 / Gj (H1 '08: Β£1.79/Gj).
As usual, our first half sales mostly comprise sales under legacy fixed or capped price contracts, whereas the majority of our floating price and uncontracted sales will take place in the final quarter. The legacy contracts will largely have fallen away by the end of this year to be substantially replaced by new or amended long-term contracts with blue chip electricity generator customers, as announced at our 2008 Preliminary Results onΒ 27 April 2009. These new contracts significantly increase our long-term contracted coal prices and our short-term cash flows.
Production:Β Total first half production was some 3.7m tonnes, the same as the first half last year (H1 '08: 3.7m tonnes). Deep mine production was 3.0m tonnes, broadly in line with expectations and slightly above last year (H1 '08: 2.8m tonnes). Surface mine production was 0.7m tonnes, slightly lower than last year (H1 '08: 0.9m tonnes), due to a greater proportionate amount of "muckshift" (the lift of non-coal material in order to expose coal) than in the same period last year.Β
|
2009 H1 |
2008 H1 |
2008 FY |
||
|
m tonnes |
m tonnes |
m tonnes |
||
|
Daw Mill |
1.7 |
1.6 |
3.2 |
|
|
Kellingley |
0.4 |
0.5 |
1.2 |
|
|
Thoresby |
0.4 |
0.3 |
0.9 |
|
|
Welbeck |
Β |
0.5 |
0.4 |
0.9 |
|
Total deep mines |
3 |
2.8 |
6.2 |
|
|
Surface mines |
Β |
0.7 |
0.9 |
1.7 |
|
Total production |
Β |
3.7 |
3.7 |
7.9 |
|
Total sales |
Β |
3.6 |
3.7 |
7.9 |
Daw Mill continued to perform strongly, producing 1.7m tonnes (H1 '08: 1.6m tonnes), reflecting its continued improved reliability and the benefits of the belt replacement programme undertaken in the last quarter of last year and the beginning of this year.Β
As expected, Kellingley and Thoresby continue to face the same geological conditions as reported on before, but together produced the same tonnage as last year - Kellingley: 0.4m tonnes (H1 '08: 0.5m tonnes); Thoresby: 0.4m tonnes (H1Β '08: 0.3m tonnes). Our investment programmes in these mines mean we expect Kellingley toΒ start miningΒ its new reserve areas in January 2010 and Thoresby in February/March 2010. It is expected this will enable both mines to increase production volumes with lower production costs per tonne.
Welbeck produced 0.5m tonnes (H1 '08: 0.4m tonnes) and will start work on its final panel this summer in the run-up to its scheduled close in Q1 2010.
Development work:Β We have deliberately increased the amount of deep mine development work we undertake alongside coal production. This increases costs in the short term but will enable a smoother flow of future coal production and minimise face gaps, consequentially benefiting future production volumes.Β
At Daw Mill, for example, first half development work was 2,700 metres, more thanΒ theΒ 2,000 metres developed in the whole of last year, and we are now operating four development headings simultaneouslyΒ at the mine.Β
Production costs:Β Reflecting the geological factors and increased development work, deep mine costs were slightly higher than originally planned. Before depreciation, non-trading exceptional items and the impact of stock movements, they were some Β£155m (H1 '08: Β£136.3m).Β The second halfΒ will,Β however,Β see the start ofΒ theΒ reduction inΒ costs at Welbeck where the last development work will shortly be complete.
Overall, therefore, we expect a deep mines first half operating loss, pre non-trading exceptional items, of just over Β£35m (H1 '08: loss of Β£24.2m).
For surface mines, the increased muckshift relative to coal production means first half production costs are expected to be around Β£1.93 /Gj before depreciation (H1 '08: Β£1.52 /Gj), delivering a first half operating loss of some Β£3m (H1 '08: operating profit Β£5.0m.) (The comparative 2008 figure is stated before the Β£5.6m of charges related to the impact of fuel prices on the provisions for restoration - charges which were reversed at the last year end).
In the second half, we expect a much improved surface mine operational performance with a lower ratio of muckshift to coal production and a significantly improved extraction cost per gigajoule, in particular resulting from thicker, higher quality seam sizes now being exposed at our Steadsburn and Cutacre mines.Β
In the light of the current coal market and the more variable cost nature of surface mines, we have decided to reduce slightly second half surface mine production and to defer the start-up to our Park Wall North, Durham, surface mine to the second quarter of 2010.
Harworth Estates
In the first quarter of 2009, the trends in the property market continued in a similar vein to the final quarter of 2008, although there have been signs in the past month or two that the general market has stabilised. Whilst agricultural land prices have continued to improve, the market for redevelopment land has been particularly subdued and, not surprisingly, the valuations of this land have fallen, despite planning progress.Β BusinessΒ ParkΒ valuations have also reduced, reflecting increased yields on shorter term commercial tenancies. Overall, we are therefore expecting the valuation on Harworth Estates to have fallen by around 9% in the first half, resulting in a first half non-cash valuation lossΒ in the income statementΒ of some Β£37m.
Overall results
Overall the first half operating loss will be around Β£38m before revaluation movements and non-trading exceptional items (H1 '08: loss of Β£25.0m). Non-cash property valuation losses are expected to be around Β£37m (H1 '08: valuation gains of Β£19.8m). Interest and other financing costs will be circa Β£11m (H1 '08: Β£5.4m), and net non-trading exceptional profits will be circa Β£4m (H1 '08: loss of Β£0.9m). The total first half pre tax loss is therefore expected to be around Β£82m (H1 '08: loss of Β£9.9m).Β
Net debt will be of the order of Β£145mΒ (December 2008: Β£137.1m), excluding restricted funds. Prepayments and loans from generators are expected to be some Β£47m (December 2008: Β£ nil).Β
Principally as a result of the change in inflation outlook assumptions and corporate bond yields, the latest indications areΒ thatΒ the deficits for IAS19 accounting purposesΒ on the defined benefit pension fundsΒ liabilities will have increased to circa Β£165m at end June 2009 (end December '08 Β£75m). This has no immediate impact on the businessΒ as the triennial scheme revaluation will be undertaken in 2010.
Outlook
Our expectations for deep mines production for the full year remain broadly unchanged atΒ up toΒ 6.75m tonnes (FY '08: 6.2m tonnes). For the reasons given, we expect full year surface mine sales of around 1.5m tonnes, with production of around 1.4m tonnes (FY '08: 1.7m tonnes).Β
In Harworth Estates, we anticipate planning progress at a number of sites in the second half. This should reinforce the underlying momentum for value creation in our property interests. We remain unchanged in our view as to the long term value in our property portfolio, notwithstanding shorter term fluctuations in the market.Β
Enquiries:
Media:
Citigate Dewe Rogerson Tel: 020 7638 9571
Anthony Carlisle Mobile: 07973 611 888
Analysts and investors:
UK COALΒ PLC Tel: 01302 751751
Jon Lloyd, Chief Executive
David Brocksom, Finance Director
Citigate Dewe Rogerson Tel: 020 7638 9571
Nick Cox-Johnson Mobile: 07957 596 729
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