Half Yearly Report

RNS Number : 5807R

UK Coal PLC

25 August 2010

 

UK COAL PLC

("UK COAL" or the "Group")

Financial Results for the six months ended 26 June 2010

Results reflect previously reported low first quarter production

Deep mines now producing in line with expectations

Financial Summary

·     Group sales £141.3m (H1 2009: £159.8m)

·     Average selling price £1.97/GJ (H1 2009: £1.80/GJ. FY 2009: £1.87/GJ)

·     Operating loss pre non-trading exceptionals and property revaluation £51.3m (H1 2009: £38.1m loss)

·     Non-cash property revaluation loss £10.1m (H1 2009: £37.4m loss)

·     Loss before tax of £93.2m (H1 2009: £81.5m loss)

·     Net debt, excluding generator loans/prepayments and restricted cash £170.1m (Dec 2009: £114.3m)

·     Total net debt, excluding restricted cash £257.0m (Dec 2009: £181.9 m)

Mining

·     Deep mining transition completed

o  Kellingley and Thoresby production up 100% and 50% respectively compared to H1 2009 Daw Mill now back to historic production levels

o  First quarter deep mine production 0.8m tonnes. Second quarter production 1.4m tonnes

·     Total production 2.7m tonnes (H1 2009 3.7m tonnes)

o  Deep mines 2.2m tonnes (H1 2009: 3.0m tonnes)

o  Surface mines  0.5m tonnes (H1 2009: 0.7m tonnes)

·     Total sales 2.9m tonnes (H1 2009: 3.6m tonnes)

Harworth Estates Property

·     RICS valuation of property portfolio £384.2m (Dec 2009: £393.8m)

Commenting, David Jones, Chairman, said:

"Our half year results are in line with the guidance we have given. They reflect the challenges we faced in completing the transition of our deep mining business, which we set out in our 2009 Annual Report and which led to a substantial drop in production in the first quarter of this year. With the transition completed, however, production in the second quarter rose sharply and is now living up to our expectations and demonstrating the benefits of the substantial investments we have made. We are therefore able to confirm our guidance for full year production of 7.6 million tonnes, approaching three times the half year total.

"The world coal price has strengthened in the year to date, and the latest available forward market prices lead us to expect our full year average realised selling price to be around £2.00/GJ, despite a significant portion of sales being supplied under legacy contracts. Looking ahead, in 2011 we will increasingly access the benefits of our new long-term coal supply contracts as the legacy contracts are exhausted.

"Our production transition and subsequent increased production volumes have also been accompanied by a noticeable improvement in safety with around a 50% reduction in the number of major injuries in the first half compared to 2009 and a 14% drop in the total reported accident rate.

"Our property business has continued to make steady planning progress. This, together with strong agricultural land values, is helping to offset the pressures still present in the commercial and residential property market. Our plans to dispose of our non-core agricultural land and to joint venture future property development are both attracting considerable interest. We expect to announce significant surplus agricultural land sales before the year-end. Meanwhile, our estimates of the worth of our estate in 2014, with the benefits of the planning consents we are pursuing, remain unchanged at £820 million in today's money terms, demonstrating the substantial value up-lifts we believe we will be able to access.

"The very different natures of our mining and property businesses and the stages of development they have now reached have led us to change our management and corporate governance structure. As we have already announced, therefore, we have appointed Managing Directors for each division, who will report directly to the Board, and we have commenced the search for an Executive Chairman. As a consequence of these changes, we have also welcomed Steven Underwood to our Board as a Non-Executive Director representing Peel Holdings, our largest shareholder, in place of Owen Michaelson who is now Managing Director of our property division.

"We have said before that it has taken us longer and cost us more than originally anticipated to manage the transition of our deep mining business. The impact of this is evident in our financial results and our current level of debt. However, we have put in hand the requisite actions, and our mining business is now showing the capacity it has in the future to produce substantial cash flows, while our property business has the capacity to produce substantial up-lifts in asset value and ultimately cash. Our strategy remains to drive shareholder value from both of these business streams."

Enquiries:

Media:

Citigate Dewe Rogerson

Anthony Carlisle Tel: [phone].   Mobile: [phone]

Analysts and investors:

Jon Lloyd, Chief Executive, UK COAL PLC Tel: [phone]

David Brocksom, Group Finance Director, UK COAL PLC Tel: [phone]

Citigate Dewe Rogerson

Nick Cox-Johnson Tel: [phone].  Mobile: [phone]

Notes to Editors:

UK COAL is Britain's biggest producer of coal, supplying around 15% of all the

coal burned in the UK, which is equivalent to the energy needed to provide around 5% of the UK's electricity requirements.  UK COAL is one of Britain's largest brownfield site property developers, owning a substantial land portfolio, which has major potential for redevelopment.

Financial highlights

Income Statement	H1 2010	H1 2009	Full Year 2009
Total Group revenue (£m)	141.3	159.8	316.0
Average sales price per Gigajoule (£/GJ)	1.97	1.80	1.87
Operating loss before non-trading exceptional items and property revaluation (£m)	(51.3)	(38.1)	(67.4)
Property revaluation loss (£m)	(10.1)	(37.4)	(25.7)
Operating loss before non-trading exceptional items (£m)	(61.4)	(75.5)	(93.1)
Operating loss (£m)	(69.9)	(71.8)	(106.2)
Loss before tax (£m)	(93.2)	(81.5)	(129.1)
Loss per share (pence)	(30.7)	(51.8)	(72.9)

Divisional breakdown - (losses) / profits before non-trading exceptional items	H1 2010	H1 2009	Full Year 2009
	£m	£m	£m
Deep mines	(50.6)	(35.9)	(70.5)
Surface mines	(1.6)	(3.2)	1.9
Others	-	(0.2)	-
Property  - Other income less expenses	0.8	0.5	1.2
- Net losses from investment properties	(10.0)	(36.7)	(25.7)
Group operating loss before non-trading exceptional items	(61.4)	(75.5)	(93.1)
Share of profit from joint ventures	0.1	0.4	1.7
Group operating loss before non-trading exceptional items after joint ventures	(61.3)	(75.1)	(91.4)

Balance sheet	June 2010	Dec 2009
Net bank debt less unrestricted cash (£m)	170.1	114.3
Generator loans / prepayments (£m)	86.9	67.6
Net assets (£m)	58.3	152.8
Net assets per share (pence)	19	51

Chairman's Statement

Results Overview

Our financial results reflect the low level of first quarter production, which we reported on in our 2009 Annual Report. Since the first quarter, with Kellingley and Thoresby producing from their new seams and Daw Mill producing from its new face, our production levels have increased strongly, living up to our expectations and enabling us to confirm our full year production guidance.

Safety improvement continues to be our top priority, and we are pleased to report benefits from our long-term safety culture programme, with around a 50% reduction in the number of major injuries in the first half compared to 2009, and a 14% reduction in the Health and Safety Executive ("HSE") reportable accident rate from 22.9 per 100,000 manshifts for the 2009 full year to 19.7 for the first half of 2010.

First half production was 27% lower than H1 2009 at 2.7 million tonnes (H1 2009: 3.7m tonnes; FY 2009: 7.0m tonnes), of which deep mine production was 2.2 million tonnes and surface mine production was 0.5 million tonnes (H1 2009: 3.0m tonnes and 0.7m tonnes respectively). As planned, Welbeck ceased production in May contributing 0.2 million tonnes in H1 (H1 2009: 0.5m tonnes; FY 2009 1.0m tonnes).

First half sales volume showed a lesser 19.4% fall to 2.9 million tonnes (H1 2009: 3.6m tonnes), as we blended away higher ash-content coal produced at the end of 2009.

Partially offsetting the drop in sales volume, we achieved a 9.4% increase in our average realised sales price to £1.97 per gigajoule (GJ) (H1 2009: £1.80/GJ), resulting both from the rise in the NW Europe coal price and from our progressive move from legacy contracts towards our new supply contract pricing. First half Group revenue was therefore 11.6% lower at £141.3 million (H1 2009: £159.8 million).

The impact of completing the transition of Kellingley and Thoresby to their new seams is shown by the increase in their overall first half production of 100% and 50% respectively, compared to the first half of 2009.Since their ramp up Kellingley and Thoresby weekly production has averaged 37,000 and 34,000 tonnes, excluding the summer maintenance period, respectively. In addition, since Daw Mill completed ramping up its new face at the end of May it has averaged 70,000 tonnes per week, in line with its historical high rates. Since the end of the half year, production from the deep mines including the summer maintenance period has averaged 131,000 tonnes per week, in line with our expectations.

Following the completion of coaling at Long Moor in January 2010, our surface mines business operated with three active mines during the first half of 2010, compared to five operating mines for the majority of the first half of 2009.  Second half 2010 surface mine production will benefit from the output of the new mines at Park Wall North, Durham and Potland Burn, Northumberland, both of which were opened in the last month, together with Huntington Lane, Telford, which is expected to be opened later this year. We completed the sale of our Blair House, Fife surface mine site in July 2010 for £1.5 million.

Our property business, Harworth Estates, has continued to make steady planning progress, and our agricultural land value increased by approximately 2.6% on a like-for-like basis from December 2009. Together, this did much to offset the regional variations in the speed and strength of the recovery in the commercial and development land market, with the aggregated RICS valuation of our portfolio showing a small reduction to £384.2 million (December 2009: £393.8m).

Reflecting the above, the Group made an operating loss before non-trading exceptional items and property valuations of £51.3 million (H1 2009: £38.1m loss). After reflecting the non-cash movements in property values, for the first half, the operating loss before non-trading exceptional items was £61.4 million (H1 2009: £75.5m loss), the Group loss before tax was £93.2 million (H1 2009: £81.5m loss) and the loss per share was 30.7 pence (H1 2009: 51.8 pence loss per share).

In consequence, at 26 June 2010, our net assets were £58.3 million compared to £152.8 million at the end of 2009, overall net bank debt (excluding restricted cash balances) was £170.1 million (December 2009: £114.3m) and total net debt, excluding restricted cash balances but including the generator loans / prepayments of £86.9 million (December 2009: £67.6m), was £257.0 million (December 2009 £181.9 m).

Strategy

With our new mining platform in place and our property business capable of accessing significant value, our strategy remains to maximise shareholder value from both these businesses and reduce debt levels, whilst continuing to pursue our top priority of improving the safety culture of the Group.

In Mining, we are focussed on increasing the consistency and reliability of production, on driving development, especially at Daw Mill, to lower operational risk, and managing costs and management structures to improve accountability. In doing so, we will fulfil the old legacy contracts and then access increasingly the substantially improved terms of the new contracts and the strong coal market, in order to deliver good profits and cash streams.

In Property, we continue to progress planning to access the embedded value of the estate, which Project Worth demonstrates, realise value through the disposal of surplus land, progress joint ventures to optimise the longer term realisation of value and seek further value enhancing opportunities, for example, in waste-to-energy.

Our programme to dispose of surplus agricultural land will reduce debt levels. Coupled with the improved prospects of positive cash streams from both mining and property, this will strengthen our financial position.

Going concern

Given the risk environment in which the Group operates we continue to keep under review our funding structure, taking into account the projected cash flows from our mining business and the benefits of the current property disposal programme. I would again draw your attention to those matters which the Board has felt it appropriate to take into account in forming its conclusion on going concern set out in the notes to this Interim Report. 

Board changes

As previously announced, the very different nature of our coal mining and property businesses and the stage of development each has now reached have led us to make changes in our corporate governance and management structure. To enable each business to focus as clearly as possible on their particular opportunities and challenges, we have appointed a Managing Director to each division. They will report directly to the Board, and it is our intention to appoint an Executive Chairman to lead the Group in future.

On 1 August, therefore, Gareth Williams, formerly Group Mining Director, was appointed Managing Director of the Mining Division, and Owen Michaelson, formerly a Non-Executive Director and the former representative of Peel Holdings was appointed full time Managing Director of the Property Division. The search for an Executive Chairman has been commissioned.

The Executive Chairman will be responsible for overall leadership of the Group and will be accountable for the Group Managing Directors. He will be supported by a central team under David Brocksom, Group Finance Director. At this stage in the Group's development, it is anticipated that the Chairmanship will be a substantively full-time appointment, although reverting over time to being part-time.

Until the Executive Chairman has been appointed Jon Lloyd and I will continue as Chief Executive and Non-Executive Chairman respectively, and Jon will continue with the Group for a limited period thereafter to facilitate an orderly transition.

Steven Underwood, Corporate Development Director of Peel Holdings, joined our Board on 1 August as Peel Holdings' representative Non-Executive Director upon Owen Michaelson's change of role.

Outlook

We continue to expect full year production to be around 7.6 million tonnes, with deep mine production of around 6.0 million tonnes (2009: 5.7m tonnes) and production from our surface mines of around 1.6 million tonnes (2009: 1.3m tonnes).

The longer-term indications for coal pricing remain favourable and, with the outstanding tonnage to be delivered under legacy contracts continuing to decrease as the contracts are fulfilled, our mix of supply is moving more towards our new or amended long term contracts, placing us in position to take advantage of the stronger market prices.  Forward market prices for the final quarter of 2010 are around £2.35/GJ, and this would lead us to expect an overall average realised sales price for the full year of around £2.00/GJ, compared to £1.97/GJ for the first half of this year and £1.87/GJ for the full 2009 year.

We are seeing strong interest in the programme we have announced to sell surplus agricultural land, where there is little likelihood of further added value from development, and we expect to announce before the end of this year  the sale of a significant acreage out of our total agricultural land portfolio of around 28,000 acres (June 2010 valuation: £119.7m). We are also seeing strong interest in our plans to joint venture development with major housebuilders where we see this will optimise value, provide market-facing expertise and enable us to bring sites to the market earlier. Detailed discussions with selected national housebuilders are now in progress.

While the property market in general remains challenging, we expect further planning progress in the second half. Our central estimate of the worth of our estate in 2014, with the benefit of expected planning permissions, remains unchanged at £820 million in today's money terms.

David Jones

Chairman

Operating review

SAFETY

The health, safety and wellbeing of our employees and contractors, as well as the wider community, continues to be our top priority. A range of programmes has been developed and rolled-out during the first half to deepen and strengthen our safety culture, including programmes to increase the reporting of incidents which, in other circumstances, could have led to injury or operational failure.  By encouraging the reporting of these "near hits", we seek to prevent future incidents.

We are pleased to report benefits arising from our long term safety culture programme. In the first six months of 2010, major injuries have reduced by around 50%, compared to the first half of 2009; reportable accidents have fallen 14% from 22.9 per 100,000 manshifts for the full year in 2009 to 19.7 for the first half of 2010; and the lost time injury rate has dropped 11% from the 2009 full year rate to 30.6 per 100,000 manshifts.

In the second half of 2010, and through 2011, our focus will be to embed a series of twelve standards that will define how UK Coal manages safety across the whole of the organisation.  These standards will cover a range of strategic areas from Leadership and Accountability through to Emergency Preparedness and Incident Investigation, and we will be working on these with a range of partners who have proven track records in transformational change in safety and business performance.

MINING

Coal market

Coal continues to be the dominant fuel for power generation in most of emerging Asia and this has moved the emphasis of traditional suppliers of the European market towards China and the Far East. China in particular shifted from being a net exporter to the third largest net importer of coal in 2009, with a net swing of 69m tonnes (10% of the world seaborne market). Imports into China in the first half of 2010 have continued at this higher level, giving further support to international prices.

European coal prices have been further supported by a combination of stronger European manufacturing activity and unexpected strength in gas prices due to intermittent supply from the Norwegian gas fields.

At the end of 2009, UK generators were holding near record coal stock levels mainly due to the economic downturn adversely affecting electricity demand. The first half of 2010 has seen generators de-stock at the expense of coal imports. As a result coal imports into the UK have fallen by over 50 per cent in the first six months compared to the same period in 2009. UK COAL sales have been largely unaffected by the generator stock lift.

Overall NW Europe coal prices have risen over the first half year from $80 per tonne at the end of 2009 to $94 per tonne at the end of the half year. The strength of the US dollar against sterling helped increase this further and the sterling price ended the half year at £64 per tonne, a rise of £15 per tonne from the start of 2010.

Since the end of June NW Europe coal prices have remained firm in dollar terms although a stronger sterling compared to the US dollar has resulted, at 20 August, in the sterling price falling to around £60 per tonne or £2.35/GJ.

NW Europe forward coal prices continue to reflect the increasing value of coal and on 20 August those prices were $93, $98, and $105 per tonne for the fourth quarter of 2010 and for the full years of 2011 and 2012 respectively.

Coal sales

The Group continues to employ a strategy of achieving a diverse mix of long term contracts with shorter term contracts and spot sales to ensure a balance between security of long term supply, ability to take advantage of market coal prices where beneficial and the need to manage variability in production. Contractual commitments at the end of June 2010 totalled 26.2 million tonnes (H1 2009: 32.2 million tonnes), as outlined in the table below.

In the first half an averaged realised sales price of £1.97/GJ was achieved compared to £1.80/GJ for the first half of 2009 and £1.87/GJ for the full year. This increase is mainly due to the higher market coal prices providing a beneficial mix effect on contracted prices. With market prices for the fourth quarter of 2010 around £2.35/GJ (API#2 of $93 per tonne converted at $1.56:£1), our expectation for the average realised sales price for the year as a whole is around the £2.00/GJ level. 

	TOTAL Million tonnes	2010 H2 Million tonnes	2011 Million tonnes	2012 Million tonnes	2013 Million tonnes	2014 Million tonnes	2015 Million tonnes
Fully Floating§	4.4	0.7	1.8	1.8	0.1	-	-
Floating within caps and floors *	7.4	1.0	2.1	3.1	0.4	0.5	0.3
Fixed, subject to indexation **	2.0	0.8	0.9	0.3	-	-	-
Fixed, not subject to indexation	12.4	2.0	2.8	2.1	1.9	1.8	1.8
Total	26.2	4.5	7.6	7.3	2.4	2.3	2.1
Options to purchase coal, granted at fully floating prices	2.4	-	0.2	0.2	1.0	1.0	-

*          Caps and floor prices are subject to indexation

**         Indexation will be RPI based

§          Fully floating tonnage is priced upon API#2, the industry benchmark price for NW Europe, plus a delivery premium. 

As a guide, we set out below the possible average sales price outturn in respect of the 26.2 million tonnes of contractual commitments. RPI changes have been assumed to be in line with Bank of England inflation targets of 2% and has also been applied on API#2 prices and on contract prices where applicable.  The actual sales price outcome will be dependent on inflation, the actual outcome for API#2, foreign exchange rates, the volume of coal delivered in any year which is not currently contracted and a number of other factors.  The table excludes the effect of uncontracted coal or coal under option and is not intended to be a forecast of the expected overall realised sales price.

API#2 Assumptions £/GJ	H2 2010 £/GJ	2011 £/GJ	2012 £/GJ	2013 £/GJ	2014 £/GJ	2015 £/GJ
£3.00	2.04	2.57	2.88	2.54	2.48	2.46
£2.75	2.01	2.49	2.78	2.54	2.48	2.46
£2.50	1.98	2.41	2.67	2.53	2.48	2.46
£2.25	1.93	2.29	2.50	2.49	2.44	2.43
£2.00	1.90	2.18	2.35	2.47	2.43	2.43
£1.75	1.87	2.12	2.27	2.47	2.43	2.43
£1.50	1.84	2.06	2.21	2.46	2.43	2.43

Deep Mines

Colliery performance summary:
	Production (m tonnes) Q1 2010	Production (m tonnes) Q2 2010	Production (m tonnes) H1 2010	Production (m tonnes) H1 2009	Operating cost* (£m) H1 2010	Operating cost* (£m) H1 2009
Deep mines
Daw Mill	0.2	0.4	0.6	1.7	50.5	55.1
Kellingley	0.3	0.5	0.8	0.4	40.6	38.1
Thoresby	0.2	0.4	0.6	0.4	35.7	31.7
Welbeck	0.1	0.1	0.2	0.5	13.9	28.9
Total deep mines production / costs before stock movements	0.8	1.4	2.2	3.0	140.7	153.8
Stock movements	-	-	-	-	8.1	(8.8)
Total production / costs for deep mines	0.8	1.4	2.2	3.0	148.8	145.0

* Operating cost before non-trading exceptional items and depreciation costs, with central costs absorbed.

As reported in our 2009 Annual Report, first quarter 2010 production was significantly reduced by geological and other issues, in particular relating to the face change at Daw Mill. As planned, Welbeck ceased mining during May.

The first quarter focus was on installing the new faces so that first half development work, particularly at Daw Mill and Thoresby was significantly below the very high levels of the first half of 2009.  Development driveage rates at all mines, however, have increased since the installation stage, and this increased emphasis will continue.

			Development driveage
			H1 2010	H1 2009	FY 2009
			(metres)	(metres)	(metres)
Deep mines
Daw Mill			723	2,721	4,191
Kellingley			3,744	3,604	6,498
Thoresby			1,462	3,966	7,851
			5,929	10,291	18,540

Daw Mill

Daw Mill's new 32s face commenced its ramp-up at the end of April and completed it by the end of May. Since then, the mine has produced in line with expectations, with a run-rate comparable to the high levels achieved in 2008 and 2009. 

The fixed cost nature of deep mining means that, while the first quarter face gap reduced first half production by 1.1 million tonnes compared to the first half of 2009, Daw Mill's operating costs before depreciation fell only by £4.6 million to £50.5 million.

There was a focus on development driveage in 2009, however this effort was curtailed to deal with the installation difficulties on the new face. We have now resumed our focus on development and work is progressing on the 303s panel set to start in mid 2011. Driveage for the 33s panel due to start in 2012 has already commenced. 

Kellingley

Kellingley is benefiting from the investment in its new Beeston seam with production from 501s face commencing in the first quarter of 2010.  Production in the first half of 2010 at 0.8 million tonnes was 100% higher than that achieved in the corresponding period in 2009 on the old Silkstone seam.  This was in line with expectations and demonstrates the improved economics of the new seam with operating costs before depreciation only up by £2.5 million to £40.6 million in the first half.

Kellingley's development work has also continued the strong performance delivered in 2009, with 3,744m driven in the first half of 2010, greater than the driveage achieved in the first half 2009. This leaves the developments on next year's coal at Kellingley at an advanced stage, with 502s face expected to start in early 2011 when 501s coaling is completed.

Thoresby

Thoresby is also seeing the benefits of our investments with output up 50% from the first half of last year to 0.6 million tonnes. It started mining DS1s, the first face in the new Deep Soft seam, in April 2010.  In parallel, we are also continuing to produce from 57s, the final face of the old Park Gate seam, until the end of the third quarter of 2010. This two-face production strategy will lengthen the life of the DS1s face, allowing substantial additional time for an increased development bank to be built for future coal production and risk mitigation. First half overall operating costs before depreciation at Thoresby increased by £4.0 million to £35.7 million due to the additional costs of the two face production strategy. Fourth quarter costs will benefit as production will have ceased at 57s.

Following installation of DS1s, Thoresby's second quarter development driveage rates have increased to levels close to the high levels achieved in 2009, with recent weeks having met or exceeded target rates. 

Welbeck

Welbeck completed mining its final panel in early May, so that its first half production of 0.2 million tonnes was some 0.3 million tonnes lower than the corresponding period in 2009.  Work on the closure of this mine has now commenced and costs to date are in line with expectations.

First half operating costs before depreciation at Welbeck of £13.9 million were significantly lower than the £28.9 million for the first half of 2009, since no development driveage was needed with production ending during the period.  Up to around the end of the third quarter of this year, there will be some ongoing costs as we continue to use the washing plant at Welbeck to process some of the higher ash content coal which we have reported was produced at the end of 2009 from the Daw Mill's old 302s face.

At the last year-end, provisions totalling £12.7 million were raised for closure of Welbeck, consisting of redundancy costs of £8.6 million and provision for consumable stores, stock and fixed assets no longer required of £3.5 million and £0.6 million respectively.  To date, £2.6 million of the redundancy provision has been spent with the balance expected to be utilised during the remainder of the year.

Surface Mines

		H1 2010	H1 2009
Production (m tonnes)		0.5	0.7
Operating costs * (£m)		26.2	33.3
Operating costs per gigajoule * (£/GJ)		2.03	1.92

* Operating cost before non-trading exceptional items and depreciation costs, with central costs absorbed.

Our surface mine operations produced 0.5 million tonnes, some 0.2 million tonnes less than in the first half last year (H1 2009: 0.7 million tonnes) since, following the completion of mining at Long Moor in January 2010, we had only three active surface mines for five months of the first half of 2010 compared to five active mines for the majority of the first half of 2009. 

The operating costs per gigajoule for the period have increased largely due to the current mix of operating sites, with relatively higher production volumes being produced from the higher cost/lower ratio sites. In addition, the higher price of fuel has affected operating costs, since fuel is one of the largest costs incurred in surface mines operations.

Production in the second half will benefit from the opening of three more sites, with Park Wall North, Durham and Potland Burn, Northumberland already opened, and Huntington Lane, Telford due to come into production in the final quarter of 2010.

On 30 July, we completed the sale of our surface mine at Blair House, Fife for £1.5 million.  The site was remote from our operating area and as such, non-core to our ongoing surface mining business.

HARWORTH ESTATES

The value of our residential land portfolio has remained overall in line with December 2009 levels, with some gains in fully consented sites ready for immediate development and some limited reductions in the value of longer term strategic land parcels, reflecting a generally short-term focus in the residential housebuilder market. However, we are starting to see a return of serious interest for fully consented sites.

Employment land has remained a difficult market in the first half across our regional areas, with an oversupply of developed-out sites. Our brownfield sites, however, are still primarily at the early stages of their planning process, and we would therefore expect values to strengthen by the time they come to the market, through both planning gains and a rebalancing of regional supply and demand.

The value of our agricultural land portfolio which amounts to around 28,000 acres (June 2010 valuation: £119.7m) has continued to remain firm, reflecting both active management and increased land values as buyers continue to chase a relatively low supply of land coming onto the market.

Overall, the RICS valuation of our property portfolio decreased from £393.8 million at the end of 2009 to £384.2 million at 26 June 2010. 

For the second half, we expect further planning progress both in applications and representations submitted and in decisions received, against a background of further stabilisation in market conditions. Further representations to local planning authorities have been submitted and planning applications prepared for over 1,500 new homes and for 894,000 sq ft (83,000 sq m) of employment space, primarily at our Rufford site in Nottinghamshire. We therefore currently have applications in the planning system for around 5,900 new homes and 4.4 million sq ft (circa 409,000 sq m) of employment space.

We have not experienced material reductions in rental or occupancy levels at our business parks or on our agricultural estate although trading conditions do remain challenging for some of our tenants.

Whilst we do not restate our Project Worth estimates at the half year there have been no significant changes in the market or the prospects for our properties in the long term. Therefore our longer term central estimate of the worth of our estate in 2014 with the benefit of expected future planning permissions remains unchanged from December 2009 at around £820 million in today's money terms.

Portfolio RICS Valuation as at 26 June 2010

			Jun-10		Dec-09		Jun-09		Dec-09	%
			£m		£m		£m		*like for like
Agricultural
	Mixed		113,808		110,923		109,926		110,741	2.8%
	Low grade		5,887		5,848		5,691		5,878	0.1%
			119,695		116,771		115,617		116,619	2.6%
Undeveloped land
	With planning		68,620		76,820		74,645		76,997	-10.9%
	Application submitted		76,930		73,550		52,625		78,117	-1.5%
	Without planning		72,074		80,354		94,268		76,334	-5.6%
			217,624		230,724		221,538		231,448	-6.0%
Commercial land with rental income
	Part or fully developed		29,250		28,750		28,000		28,814	1.5%
	In development		2,000		1,750		1,750		1,820	9.9%
			31,250		30,500		29,750		30,635	2.0%
Investment Properties at valuation			368,569		377,995		366,905		378,701	-2.7%
Operational
	Potential development		7,536		7,536		7,222		7,608	-1.0%
	Agricultural		1,096		1,298		1,457		1,084	1.1%
	Other		7,000		7,000		6,650		6,919	1.2%
Operational Properties at valuation			15,632		15,834		15,329		15,611	0.1%
Total Properties at valuation			384,201		393,829		382,234		394,312	-2.6%

* The like for like December 2009 comparative and percentage change are after property reclassifications and take into account adjustments for asset sales of £0.5 million and purchases, development expenditures and depreciation of £1.0 million.

Baileycross: During the first half, we submitted representations for a further 24 acres net (circa 9.7 ha) of residential development on land adjoining our Baileycross Development, Pontefract, which was approved last year for 917 homes together with 260,000 sq ft (circa 24,200 sq m) of employment space and ancillary retail/leisure. Wakefield's draft site allocations Development Plan Document ("DPD") includes this extra land. Formal adoption of the DPD is then expected in spring 2011 to include our additional site.

Waverley: At Waverley, Rotherham, South Yorkshire, in January, two planning applications received a resolution to grant planning permission. The first is for a new community of 3,890 homes plus approximately 165,000 sq ft (circa 15,000 sq m) for commercial and leisure use. The second is for a change of use to a Government office campus of approximately 646,000 sq ft (circa 60,000 sq m) plus a hotel and ancillary retail space.  Both schemes have since received confirmation of non-intervention by the Secretary of State and can therefore be determined locally by Rotherham subject to the completion of a Section 106 Agreement, which is expected to be completed by the end of Q3.

Evolution Park: We have now completed the build-out of Evolution Park on our AMP site in South Yorkshire of approximately 94,000 sq ft (circa 8,700 sq m) with our joint venture partner Strategic Sites Ltd. Currently, approximately 48,800 sq ft (circa 4,500 sq m) is let and 10,000 sq ft (circa 930 sq m) is under offer, with interest being shown in the majority of the remaining units.

Rossington: At Rossington, the former eco-town concept has successfully established that the former colliery site is suitable for residential development. This is supported by both Doncaster Council and the majority of local residents. Plans for the redevelopment of the site will now focus on a more traditional residential-led scheme which will maximise the land value, with a scheme for about 1,700 homes on 125 acres (circa 50 ha). In the meantime, approval of the neighbouring Inland Port development will allow the delivery of a new high quality road access to our site from J3 of the M18.

Cutacre: At Cutacre near Bolton, Bolton Council have included the site of our major premium business park proposal, on part of the current surface mining project, as a suitable location for employment land within their proposed Core Strategy, which was submitted to the Secretary of State on 7 May 2010. The Planning Inspectorate has appointed an Inspector to undertake an examination in public in September 2010.  It is expected that this report will be published in December 2010 with adoption in the first half of 2011.

Harworth: At our Harworth Colliery site, an outline planning application was submitted at the end of 2009 seeking consent for 996 new homes, a 22,000 sq ft (circa 2,000 sq m) food store and 825,000 sq ft (circa 76,600 sq m) of B1, B2 and B8 employment space. The application is expected to be determined at Bassetlaw Council's September planning committee.  The foodstore site has been sold subject to contract to a major national foodstore operator and will form the entrance gateway to the new housing development expected to commence in 2011.

Following the election of the Coalition Government local authorities are awaiting central guidance on housing and planning related matters. This may lead to a slow down, in the short term, in determining current planning applications.

The previously announced programme to sell surplus agricultural land is progressing well and we expect to announce completion of the sale of a significant acreage before the end of this year. We are also seeing strong interest in our plans to joint venture development with major housebuilders where we see this will optimise value, provide market-facing expertise and enable us to bring sites to the market earlier. Detailed discussions with selected national housebuilders are now in progress.

Planning progress continues under our Collaboration Agreement with Peel Energy to pursue wind farm projects on selected sites within our portfolio. We are in detailed discussions with them on the commercial arrangements which will be put in place as and when planning is secured.

We also continue to review, with Peel Environmental, a portfolio of sites across our estate for their suitability for use as waste to energy schemes. A short list of around 12 sites is being evaluated in greater detail before formalising a joint venture proposal.

FINANCIAL REVIEW

Financial performance

A review of the financial position and performance of the Group and the individual businesses has been given in the Operating Review and further detailed disclosures are contained in the financial statements accompanying this report.

Exceptional items

During the period, there were non-trading exceptional items resulting in a charge of £8.5 million (H1 2009: £3.7m gain), together with a further £10.0 million (H1 2009: £nil) of exceptional financing costs which have been described within the financing expenses section below.  The main elements of the non-trading exceptional items were as follows.

·      Restructuring and reorganisation costs of £7.6 million (H1 2009: £0.7m), of which £5.8 million related to professional fees principally associated with refinancing, £0.2 million on the impairment of fixed assets following the cessation of coaling at Welbeck colliery and the balance on restructuring of deep mines operations.

·      Costs in relation to Harworth mine of £0.9 million (H1 2009: £2.2m) which were incurred in the care and maintenance of the Harworth mine which is currently mothballed.  The current year charge is lower as exploration costs were incurred at the start of 2009 to prove its coal reserves.

Financing expenses and funding

Total net finance costs in the first half of 2010 were £23.4 million (H1 2009: £10.2m), of which £10.0 million (H1 2009: £nil) relates to one-off exceptional finance costs.

Ongoing net finance costs of £13.4 million showed a £3.2 million increase over the corresponding period last year. This principally reflects interest of £4.2 million (H1 2009: £0.7m) on the generator loans which have increased in 2010 compared to the same period in 2009, although bank interest costs have fallen. Changes in non-cash charges in respect of interest rate swaps, discount amortisation and facility cost amortisation largely offset each other.

Following the Group's refinancing in April 2010, as previously announced, capitalised bank arrangement fees of £2.7 million were written off together with an estimated £5.0 million of new arrangement fees incurred in respect of the renegotiated facilities. The ultimate cost of the new facility fees is dependent on the value of land sales achieved in the period to July 2011. Furthermore, the fair value of the related interest rate swaps of £2.2 million which had previously been hedge accounted have been recycled from reserves to the income statement on the extinguishment of the associated loans. The combined value of these items has been classified as an exceptional finance cost.

As reported in the 2009 Annual Report, the Group has renewed and extended certain of its banking facilities during the period. There have been no significant changes since then.

A summary of our principal current facilities is shown below:

	Facility £m	Margin over LIBOR	Maturity
RCF	521	300-500bps2	July 2011
Additional line	20	1,600bps	July 2011
Harworth Estates (Agricultural Land) Ltd	46	400bps	May 2012
Harworth Estates (Waverley Prince) Ltd	43	900bps	July 2013
EOS Inc. Ltd	22	300bps	May 2012
Total	183

Notes

1 Falling to £49.5 million in October 2010.

2 Margin dependent on level of committed facility.

In addition to the above facilities we have agreed a further £10 million of unsecured stand-by facility expiring at the end of July 2011 from Peel Holdings, which is available for drawing in the event that the RCF is fully drawn. Furthermore, at June 2010 generator loans and prepayments totalled £86.9 million and fully drawn finance leases and other small bank loans totalled £16 million and £3 million respectively.

Tax

There has been no corporation tax charge in the period (H1 2009: £nil).

The Group continues to review its deferred tax asset given the nature of its business and its historic performance.  There have been no movements in deferred tax balances in the six months to June 2010 (H1 2009: £nil), and the Group has recognised a deferred tax asset of £35.8 million, being the amount expected to be recovered based on forecasts of future taxable profits, offset by a deferred tax liability of £0.4 million at June 2010.  Further deferred tax assets have not been recognised owing to the uncertainty as to their recoverability.

Although there has been no movement in the deferred tax balances in the balance sheet, there was a deferred tax credit in the income statement of £1.2 million (H1 2009: £nil) relating to the recycling from reserves of deferred tax on the fair value movements on interest rate swaps which are also being recycled from reserves following the refinancing exercise as noted above.

Retirement benefit obligations

The Group's defined benefit obligations comprise two funded industry wide schemes, the small Blenkinsopp scheme and an unfunded concessionary fuel scheme.

The industry wide schemes, which are closed to new entrants but are required to be open for future service, had a combined deficit of £189.5 million at June 2010 (December 2009: £186.0m).  The deficit has increased over the first half by £3.5 million principally due to the return on the funds' assets being lower than expected.

The overall post service obligations also include an unfunded liability in respect of the concessionary fuel scheme of £36.8 million (December 2009: £34.8m).

Overall the Group's post retirement net liabilities have therefore increased by £5.5 million over the period.

	Pension £m	Concessionary fuel £m	Total £m
At January 2010	(186.0)	(34.8)	(220.8)
Interest cost less expected return on assets	(3.0)	(1.0)	(4.0)
Difference between actual return and expected return on assets	(11.9)	-	(11.9)
Actuarial gain/(loss) in respect of liabilities	8.4	(1.2)	7.2
Contributions paid less current service cost	3.0	0.2	3.2
At June 2010	(189.5)	(36.8)	(226.3)

Balance sheet

The Group's net assets have fallen in the first half of the year from £152.8 million at the start of the year to £58.3 million at the half year primarily due to the Group's net loss for the period.

KEY RISKS AND UNCERTAINTIES

UK COAL PLC operates in an industry which carries inherent risk, and is subject to market and other external risks which cannot be fully controlled, mitigated or insured against. The Key Risks and Uncertainties identified by the Directors which exist within the Group remain those disclosed on pages 51 to 53 in the Annual Report and Accounts for the Group for the year ended 26 December 2009.

The key risks fall into the following categories:

Mining risks:

-  Health, safety and environment

-  Major unforeseeable production shortfalls or geological constraints

-  Financing

-  Fluctuations in coal prices

Pension risk

Property risks:

-  Property market downturn or volatility

-  Planning approvals

The Outlook section of the Chairman's Statement provides commentary concerning the remainder of the financial year.

Forward-looking statements

Certain statements in this interim report are forward-looking.  Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct.  Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM FINANCIAL REPORT

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

-  an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the key risks and uncertainties for the remaining six months of the financial year; and

-  material related parties transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of UK COAL PLC are listed in the UK COAL PLC Annual Report for 26 December 2009. Changes in Directors since December 2009 are shown in the Chairman's Statement. A list of current Directors is maintained on the UK COAL PLC website: www.ukcoal.com

By order of the Board

                                                Jon Lloyd                                              David Brocksom

                                                Chief Executive                                     Finance Director

                                                25 August 2010                                     25 August 2010

INDEPENDENT REVIEW REPORT TO UK COAL PLC

Introduction

We have been engaged by the company to review the condensed consolidated interim financial information in the interim report for the six months ended 26 June 2010, which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in shareholders' equity, the consolidated balance sheet, the consolidated statement of cash flows and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed financial information included in this interim report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial information in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the interim report for the six months ended 26 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - Going concern

In arriving at our review conclusion, which is not qualified, we have considered the adequacy of the disclosures made in the basis of preparation note within the condensed consolidated interim financial information concerning the company's ability to continue as a going concern.

These disclosures indicate the existence of material uncertainties which may cast significant doubt about the company's ability to continue as a going concern.

PricewaterhouseCoopers LLP

Chartered Accountants

Leeds

25 August 2010

Notes:

a) The maintenance and integrity of the UK Coal plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial report since it was initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

Consolidated Income Statement

for the six months ended 26 June 2010

		Unaudited	Unaudited	Audited
		6 months ended	6 months ended	year ended
		26 June	27 June	26 December
		2010	2009	2009
Continuing operations	Notes	£000	£000	£000
Revenue	2	141,349	159,781	316,005
Cost of sales		(189,337)	(195,812)	(392,639)
Gross loss		(47,988)	(36,031)	(76,634)
Net decrease in fair value of investment properties		(10,132)	(37,385)	(25,704)
Profit/(loss) on disposal of investment properties		175	666	(3)
Loss on investment properties		(9,957)	(36,719)	(25,707)
Profit on sale of joint venture		-	6,534	6,534
Other operating expenses		(12,003)	(5,557)	(10,395)
Operating loss	2	(69,948)	(71,773)	(106,202)
Finance costs		(23,538)	(10,526)	(25,306)
Finance income		152	368	729
Net finance costs	3	(23,386)	(10,158)	(24,577)
Share of post-tax profit from joint ventures		126	407	1,719
Loss before tax		(93,208)	(81,524)	(129,060)
Tax credit	4	1,193	-	1,513
Loss for the period		(92,015)	(81,524)	(127,547)
Attributable to:
Equity holders of the Company		(92,015)	(81,524)	(127,547)
Loss per share		pence	pence	pence
Basic and diluted	6	(30.7)	(51.8)	(72.9)

Consolidated Statement of Comprehensive Income

for the six months ended 26 June 2010

	Unaudited	Unaudited	Audited
	6 months ended	6 months ended	year ended
	26 June	27 June	26 December
	2010	2009	2009
	£000	£000	£000
Loss for the period	(92,015)	(81,524)	(127,547)
Other comprehensive income:
Actuarial loss on industry wide pension schemes	(3,553)	(87,948)	(118,239)
Actuarial gain/(loss) on Blenkinsopp pension scheme	13	(247)	(402)
Actuarial loss on concessionary fuel reserve	(1,158)	(3,474)	(4,110)
Cash flow hedges	3,292	734	3,134
Movement on deferred tax asset relating to cash flow hedges	(1,193)	-	(911)
Revaluation of property transferred from operating to investment properties	(122)	-	52
Total comprehensive loss for the period	(94,736)	(172,459)	(248,023)
Attributable to:
Equity holders of the Company	(94,736)	(172,459)	(248,023)

The notes on the following pages are an integral part of the condensed consolidated interim financial statements.

Consolidated Statement of Changes in Shareholders' Equity

		Share
	Ordinary	premium	Other	Retained	Total
	shares	account	reserves	earnings	equity
	£000	£000	£000	£000	£000
Balance at January 2009	1,572	30,756	301,524	(33,420)	300,432
Loss for the six months to June 2009	-	-	-	(81,524)	(81,524)
Other comprehensive income:
Actuarial losses on post retirement benefits	-	-	-	(91,669)	(91,669)
Fair value loss on revaluation of investment properties	-	-	(37,385)	37,385	-
Transfer of realised gain on disposed properties	-	-	(3,769)	3,769	-
Hedging reserve created - fair value gains in period	-	-	734	-	734
Total comprehensive income for the period ended June 2009	-	-	(40,420)	(132,039)	(172,459)
Transactions with owners:
Accrual for long term incentive plan liabilities	-	-	-	312	312
	-	-	-	312	312
Balance at June 2009	1,572	30,756	261,104	(165,147)	128,285
Loss for the six months to December 2009	-	-	-	(46,023)	(46,023)
Other comprehensive income:
Actuarial losses on post retirement benefits	-	-	-	(31,082)	(31,082)
Fair value gain on revaluation of investment properties	-	-	11,681	(11,681)	-
Property revaluation on transfer to investment properties	-	-	52	-	52
Transfer of realised gain on disposed properties	-	-	(2,823)	2,823	-
Hedging reserve created - fair value losses in period	-	-	(734)	-	(734)
Hedging reserve amortised in period	-	-	3,134	-	3,134
Movement on deferred tax asset relating to cash flow hedges	-	-	(911)	-	(911)
Total comprehensive income for the period ended December 2009	-	-	10,399	(85,963)	(75,564)
Transactions with owners:
New shares issued	1,421	-	-	98,283	99,704
Accrual for long term incentive plan liabilities	-	-	-	364	364
	1,421	-	-	98,647	100,068
Balance at December 2009	2,993	30,756	271,503	(152,463)	152,789
Loss for the six months to June 2010	-	-	-	(92,015)	(92,015)
Other comprehensive income:
Actuarial losses on post retirement benefits	-	-	-	(4,698)	(4,698)
Fair value loss on revaluation of investment properties	-	-	(10,132)	10,132	-
Property revaluation on transfer to investment properties	-	-	(122)	-	(122)
Transfer of realised gain on disposed properties	-	-	(147)	147	-
Hedging reserve amortised in period	-	-	3,292	-	3,292
Movement on deferred tax asset relating to cash flow hedges	-	-	(1,193)	-	(1,193)
Total comprehensive income for the period ended June 2010	-	-	(8,302)	(86,434)	(94,736)
Transactions with owners:
Accrual for long term incentive plan liabilities	-	-	-	268	268
	-	-	-	268	268
Balance at June 2010	2,993	30,756	263,201	(238,629)	58,321

Consolidated Balance Sheet

at 26 June 2010

			Unaudited	Unaudited	Audited
			26 June	27 June	26 December
			2010	2009	2009
		Notes	£000	£000	£000
ASSETS
Non-current assets
Operating property, plant and equipment		7	220,569	194,393	218,995
Surface mine development and restoration assets		7	20,315	24,667	22,607
			240,884	219,060	241,602
Investment properties		8	368,569	366,905	377,995
Investment in joint ventures		13	3,389	893	3,263
Deferred tax asset			35,800	36,121	35,800
Trade and other receivables			3,080	1,282	1,963
			651,722	624,261	660,623
Current assets
Inventories			42,188	58,488	55,759
Trade and other receivables			34,396	25,393	24,676
Cash and cash equivalents		9	27,576	36,912	41,359
			104,160	120,793	121,794
Total assets			755,882	745,054	782,417
LIABILITIES
Current liabilities
Borrowings - bank loans, overdrafts and finance leases		10	(6,942)	(51,190)	(10,728)
- generator loans and prepayments		10	(15,411)	-	(2,990)
Derivative financial instruments			(2)	(1,831)	(721)
Trade and other payables			(108,112)	(106,407)	(104,276)
Provisions		11	(29,020)	(28,106)	(38,556)
			(159,487)	(187,534)	(157,271)
Net current liabilities			(55,327)	(66,741)	(35,477)
Non-current liabilities
Borrowings       - bank loans, overdrafts and finance leases		10	(166,194)	(101,729)	(117,194)
- generator loans and prepayments		10	(71,532)	(47,284)	(64,619)
Derivative financial instruments			(7,029)	(5,993)	(6,062)
Trade and other payables			(4,176)	(81)	(76)
Deferred tax liabilities			(422)	(815)	(422)
Provisions		11	(62,444)	(77,346)	(63,151)
Retirement benefit obligations		12	(226,277)	(195,987)	(220,833)
			(538,074)	(429,235)	(472,357)
Total liabilities			(697,561)	(616,769)	(629,628)
Net assets			58,321	128,285	152,789
SHAREHOLDERS' EQUITY
Capital and reserves
Called up share capital			2,993	1,572	2,993
Share premium			30,756	30,756	30,756
Revaluation reserve			127,295	128,646	127,497
Capital redemption reserve			257	257	257
Fair value reserve			136,303	136,443	146,502
Hedging reserve			(654)	(4,242)	(2,753)
Retained loss			(238,629)	(165,147)	(152,463)
Total shareholders' equity			58,321	128,285	152,789

Consolidated Statement of Cash Flows

for the six months ended 26 June 2010

		Unaudited	Unaudited	Audited
		6 months ended	6 months ended	year ended
		26 June	27 June	26 December
		2010	2009	2009
	Notes	£000	£000	£000
Cash flows from operating activities
Loss for the period	2	(92,015)	(81,524)	(127,547)
Depreciation/impairment of property, plant and equipment	7	15,764	17,876	32,864
Amortisation of surface mine development and restoration assets	7	4,332	6,832	9,961
Net fair value decrease in investment properties	8	10,132	37,385	25,704
Net interest payable and unwinding of discount on provisions	3	23,386	10,158	24,577
Net charge for share-based remuneration		268	312	676
Share of post-tax profit from joint ventures		(126)	(407)	(1,719)
(Profit)/loss on disposal of investment properties		(175)	(666)	3
Profit on disposal of operating property, plant and equipment		(5)	(12)	(172)
Profit on sale of joint venture	13	-	(6,534)	(6,534)
Capitalised surface mine restoration costs		-	-	1,456
Decrease in provisions		(11,067)	(12,333)	(23,753)
Tax credit	4	(1,193)	-	(1,513)
Operating cash flows before movements in working capital		(50,699)	(28,913)	(65,997)
Decrease/(increase) in inventories		13,571	(11,736)	(9,007)
(Increase)/decrease in receivables		(10,837)	14,844	14,879
Increase in payables		1,612	2,297	692
Cash used in operations		(46,353)	(23,508)	(59,433)
Loan arrangement fees paid		(702)	(2,034)	(4,155)
Tax receipt		538	-	-
Interest paid		(4,001)	(5,966)	(13,406)
Cash used in operating activities		(50,518)	(31,508)	(76,994)
Cash flows from investing activities
Interest received	3	152	368	729
Net receipt from insurance and subsidence security funds		3,206	1,204	994
Net proceeds from sale of joint venture		-	8,726	8,726
Proceeds on disposal of investment properties		685	5,435	8,483
Proceeds on disposal of operating property, plant and equipment		11	58	400
Net receipts from/(investment in) joint ventures		-	100	(208)
Development costs of investment properties	8	(1,002)	(4,402)	(8,064)
Pre-coaling expenditure for surface mines and deferred stripping costs		(2,040)	(3,020)	(5,545)
Purchase of operating property, plant and equipment		(15,950)	(17,443)	(53,233)
Cash used in investing activities		(14,938)	(8,974)	(47,718)
Cash flows from financing activities
Proceeds from issue of ordinary shares		-	-	99,704
Net proceeds from/(repayment of) bank loans		42,828	(33,751)	(59,278)
Net proceeds from generator loans and prepayments		15,168	46,555	63,609
Repayments of obligations under hire purchase and finance leases		(3,117)	(5,308)	(8,072)
Cash generated from financing activities		54,879	7,496	95,963
Decrease in cash		(10,577)	(32,986)	(28,749)
At commencement of period
Cash		13,587	42,336	42,336
Cash equivalents		27,772	28,766	28,766
		41,359	71,102	71,102
Decrease in cash		(10,577)	(32,986)	(28,749)
Decrease in cash equivalents (net receipt from insurance and subsidence security funds)		(3,206)	(1,204)	(994)
		27,576	36,912	41,359
At end of period
Cash		3,010	9,350	13,587
Cash equivalents		24,566	27,562	27,772
Cash and cash equivalents	9	27,576	36,912	41,359

Notes to the Condensed Consolidated Interim Financial Statements

for the six months ended 26 June 2010

1.     BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

General information

UK COAL PLC (the 'Company') is a limited liability company incorporated and domiciled in the UK. The address of its registered office is Harworth Park, Blyth Road, Harworth, Doncaster, DN11 8DB.

The Company is listed on the London Stock Exchange.

The condensed consolidated interim financial statements for the six months ended 26 June 2010 comprise the Company and its subsidiaries (together referred to as the 'Group').

The condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group financial statements for the year ended 26 December 2009 were approved by the Board of Directors on 26 April 2010 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified but contained an emphasis of matter paragraph in relation to going concern.

The condensed consolidated interim financial statements for the period ended 26 June 2010 have been reviewed, not audited and were approved by the Board on 25 August 2010.

Basis of preparation

The condensed consolidated interim financial statements for the six months ended 26 June 2010 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim financial reporting' as adopted by the European Union ('EU'). The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 26 December 2009 which have been prepared in accordance with IFRSs as adopted by the EU.

Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 26 December 2009, as described in those annual financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected annual earnings.

New and amended standards adopted by the Group

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010:

·  IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates', and IAS 31, 'Interests in joint ventures', are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition related costs are expensed. There has been no impact of IFRS 3 (revised) on the current period.

As the Group has adopted IFRS 3 (revised), it is required to adopt IAS 27 (revised)  at the same time. IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. There has been no impact of IAS 27 (revised) on the current period.

Standards, amendments and interpretations to existing standards effective in 2010 but not relevant to the Group

·  IFRIC 17, 'Distributions of non-cash assets to owners', effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions.

·  IFRIC 18, 'Transfers of assets from customers', effective for transfer of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers.

1.     BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued

The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2010 and have not been early adopted

·  IFRS 9, 'Financial instruments', issued in December 2009. This addresses the classification and measurement of financial assets and is likely to affect the Group's accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is yet to assess IFRS 9's full impact or determine its date of adoption.

·  Revised IAS 24, 'Related party disclosures', issued in November 2009. It supersedes IAS 24, 'Related party disclosures', issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011. Earlier application, in whole or in part, is permitted. The Group will apply the revised IAS 24 from 1 January 2011.

·  'Classification of rights issues' (Amendment to IAS 32), issued in October 2009. The amendment should be applied for annual periods beginning on or after 1 February 2010. Earlier application is permitted. This is not currently relevant to the Group.

·  'Prepayments of a minimum funding requirement' (Amendments to IFRIC 14), issued in November 2009. The amendments correct an unintended consequence of IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The Group will apply this from 1 January 2011 but the impact of adoption is not expected to be significant.

·  IFRIC 19, 'Extinguishing financial liabilities with equity instruments'. This clarifies the requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after 1 July 2010. Earlier application is permitted. This is not currently relevant to the Group.

Trading and non-trading exceptional items

Items that are both material and non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the condensed consolidated interim financial statements are referred to as exceptional items and disclosed within their relevant income statement category.  Items that may give rise to classification as exceptional items include, but are not limited to, costs and income from significant and material restructuring events, closures and reorganisation programmes, asset impairments, and profits or losses on the disposal of businesses.

Exceptional items are divided into non-trading and trading exceptional items, depending upon the impact of the event giving rise to the cost or income on the ongoing trading operations and the nature of the costs or income involved. Non-trading exceptional items include costs and income arising from closures, reorganisation programmes and business disposals.

Property related transactions, including changes in the fair value of investment properties, and profits and losses arising on the disposal of property assets are not included in the definition of exceptional items as they are expected to recur, but are separately disclosed on the face of the consolidated income statement, where material.

Going concern

This interim report is prepared on the basis that the Group is a going concern.  In forming its opinion as to going concern, the Board prepares a cash flow forecast based upon its assumptions as to trading as well as taking into account the available borrowing facilities in line with the Treasury Policy disclosed in the Directors' Report in the Group's Annual Report and Accounts for the year ended 26 December 2009.  The Board also prepares a number of alternative scenarios modelling the business variables and Key Risks and Uncertainties as summarised on pages 51 to 53 in the Annual Report and Accounts for the year ended 26 December 2009.

The key factors that have been considered in this regard are:

·  The deep mines operate with a cost base which is largely fixed relative to production levels. Consequently, unexpectedly large interruptions or prolonged reductions in production can have a material adverse impact on cash flow. Recent performance has been illustrative of the difficulties inherent in deep mining operations and, in particular, the impact of unpredictable geological conditions and/or other operational issues on production volumes from our deep mines. The Board believes that these risks are now much reduced as all three deep mines are producing coal from their new faces.

1.     BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued

Going concern continued

·  The Board has to take account of the ability of the Group to access new or additional finance. The Group has certain bank facilities which are scheduled to be repaid or part repaid in July 2011. Whilst the Board has not yet started negotiations with its bankers to renew or extend these facilities, pending further progress on the disposal of land assets and mining performance of the new faces, the Board believes that it will be possible to put in place suitable renewed or increased facilities in due course.

·  Existing bank funding arrangements contain, in certain cases, covenants based upon operating profits, adjusted for property revaluations and depreciation in particular, interest cover, loan to property value and net asset values. Property valuations affect the loan to value covenants and net asset values and similarly net asset values are affected by operational performance. Breach of covenants could result in the need to pay down in part some of these loans or a renegotiation of terms or, in extremis, a reduction or withdrawal of facilities by the banks concerned.

·  Although the majority of coal production for the next 12 months is on fixed or capped/floor pricing bases, revenues in respect of certain floating rate contracts and uncontracted coal will vary based upon the market price for coal, which is expressed in dollars, and sterling/dollar exchange rates. These variables have, over the last year, proved to be very volatile and therefore there is a risk of unpredictability in coal revenues and cash flows.

The Board notes that the matters set out above indicate the existence of material uncertainties which may cast significant doubt over the Group's ability to continue as a going concern. Nevertheless, the Board confirms its belief that it is appropriate to use the going concern basis of preparation for this interim report. This interim report does not include the adjustments that would result if the Group or the Parent Company were unable to continue as a going concern.

Seasonality

Significant seasonal or cyclical variations in the Group's total revenues are not experienced during the financial year.

Estimates and judgements

The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 26 December 2009

2.         SEGMENTAL REPORTING

The chief operating decision-maker has been identified as the Executive Management Committee, as detailed below. The Committee manages and co-ordinates all strategic and key operational issues. The Committee considers that the operating segments comprise:

-  Mining, split between deep mining, including the contract services operations and the methane extraction / electricity generating operations, and surface mining, including the plant and equipment fleet operation;

-  Harworth Estates, our property division including the wind farm portfolio; and

-  Other, consisting of operations not controlled by the mining or property businesses and unallocated central activities which do not represent a separate reportable segment in accordance with IFRS 8.

The performance of the operating segments is assessed on a measure of operating profit / loss. This measurement basis excludes the effect of non-trading exceptional items and finance costs and income which are not included in the results of the operating businesses.

Total assets for the segments exclude deferred tax and cash and cash equivalents (unrestricted) as these are managed centrally. Cash and cash equivalents that are subject to restriction have been included within the appropriate segment, along with the related provisions.

The Executive Management Committee as at 26 June 2010 consisted of:

Chief Executive                                                                                           Jon Lloyd

Finance Director                                                                                         David Brocksom

Mining Director                                                                                          Gareth Williams

Production Director                                                                                    William Tinsley

Human Resources Director                                                                         David Stewart

Commercial Contracts Director                                                                  Philip Garner

Safety Director                                                                                           Stuart Hoult

Company Secretary                                                                                    Richard Cole

Subsequent to the period end Owen Michaelson as Managing Director of the property division was appointed to the Executive Management Committee.

Revenue	6 months	6 months	Year ended
	ended June	ended June	December
	2010	2009	2009
Revenue from operations arises from:	£000	£000	£000
Sale of goods	138,181	156,346	309,528
Rendering of services	206	612	660
Rental income	2,962	2,823	5,817
	141,349	159,781	316,005

Notes to the Condensed Consolidated Interim Financial Statements continued

for the six months ended 26 June 2010

2.         SEGMENTAL REPORTING continued

Six months ended June 2010	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other**	Total
	£000	£000	£000	£000	£000	£000	£000
Continuing operations
Revenue - gross	94,946	17,906	112,852	29,631	3,415	4	145,902
Revenue - intra Group	(208)	-	(208)	(3,926)	(419)	-	(4,553)
Revenue - external	94,738	17,906	112,644	25,705	2,996	4	141,349
Operating (loss)/profit before non-trading exceptional items and net decrease in fair value of investment properties	(51,166)	571	(50,595)	(1,552)	930	(60)	(51,277)
Net decrease in fair value of investment properties	-	-	-	-	(10,132)	-	(10,132)
Operating loss before non-trading exceptional items	(51,166)	571	(50,595)	(1,552)	(9,202)	(60)	(61,409)
Non-trading exceptional items
- Rationalisation, closure and other costs	(1,430)	(1,156)	(2,586)	(69)	(17)	(5,867)	(8,539)
Operating loss after non-trading exceptional items	(52,596)	(585)	(53,181)	(1,621)	(9,219)	(5,927)	(69,948)
Finance costs							(13,591)
Exceptional finance costs							(9,947)
Finance income							152
Net finance costs							(23,386)
Share of post-tax profit from joint ventures
- Property							126
Loss before tax							(93,208)
Tax credit							1,193
Loss for the period							(92,015)
Other segmental items
Capital expenditure	17,435	-	17,435	-	1,074	173	18,682
Depreciation	14,102	288	14,390	1,037	81	33	15,541
Surface mines development costs and restoration assets capitalised	-	-	-	2,040	-	-	2,040
Amortisation of surface mining development and restoration assets	-	-	-	4,332	-	-	4,332
Provisions - non-cash charge/(credit)	3,633	(930)	2,703	69	17	-	2,789

* Closed/sold deep mines includes income and expenditure arising at the Welbeck and Harworth collieries.

** Other consists of operations not controlled by the mining or property businesses and unallocated central activities which do not represent a separate reportable segment in accordance with IFRS 8.

Property operating loss includes the net decrease in fair value of investment properties of £10,132,000 offset by profit on disposal of investment properties of £175,000.

Non-trading exceptional items

Rationalisation, closure and other costs consists of restructuring costs of £1,430,000, care and maintenance costs for Harworth colliery of £933,000, impairment of Welbeck colliery assets of £223,000, professional fees in relation to refinancing of £5,867,000 and redundancy costs of £86,000.

All non-trading exceptional items are included in cost of sales, with the exception of professional fees in relation to refinancing which are included within other operating expenses.

Exceptional finance costs

Following the Group's refinancing in April 2010, previously capitalised issue costs of bank loans of £2,743,000 were written off and the additional arrangement fees incurred on the replacement facilities which totalled £4,998,000 were expensed. Furthermore, the fair values of the related interest rate swaps which had previously been hedge accounted, totalling £2,206,000 have been recycled from reserves to the income statement in line with the relevant accountant standards. All of these costs have been treated as exceptional finance costs (see note 3).

2.         SEGMENTAL REPORTING continued

Six months ended June 2009	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other**	Total
	£000	£000	£000	£000	£000	£000	£000
Continuing operations
Revenue - gross	100,663	24,890	125,553	35,377	3,261	76	164,267
Revenue - intra Group	-	-	-	(4,052)	(434)	-	(4,486)
Revenue - external	100,663	24,890	125,553	31,325	2,827	76	159,781
Operating (loss)/profit before non-trading exceptional items and net decrease in fair value of investment properties	(29,105)	(6,783)	(35,888)	(3,222)	1,208	(170)	(38,072)
Net decrease in fair value of investment properties	-	-	-	-	(37,385)	-	(37,385)
Operating loss before non-trading exceptional items	(29,105)	(6,783)	(35,888)	(3,222)	(36,177)	(170)	(75,457)
Non-trading exceptional items
- Profit on sale of joint venture	-	-	-	-	-	6,534	6,534
- Rationalisation, closure and other costs	(643)	(2,150)	(2,793)	(18)	-	(39)	(2,850)
Operating (loss)/profit after non-trading exceptional items	(29,748)	(8,933)	(38,681)	(3,240)	(36,177)	6,325	(71,773)
Finance costs							(10,526)
Finance income							368
Net finance costs							(10,158)
Share of post-tax profit from joint ventures
- Property							19
- Coal4Energy							388
Loss before tax							(81,524)
Tax							-
Loss for the period							(81,524)
Other segmental items
Capital expenditure	30,306	-	30,306	67	4,542	-	34,915
Depreciation	15,773	776	16,549	1,215	81	31	17,876
Surface mines development costs and restoration assets capitalised	-	-	-	3,020	-	-	3,020
Amortisation of surface mining development and restoration assets	-	-	-	6,832	-	-	6,832
Provisions - non-cash charge	2,178	252	2,430	-	-	2	2,432

* Closed/sold deep mines includes income and expenditure arising at the Welbeck and Harworth collieries. In 2010, Welbeck colliery was reclassified from ongoing deep mines to closed/sold deep mines and accordingly the comparative information has been restated to reflect this change.

** Other consists of operations not controlled by the mining or property businesses and unallocated central activities which do not represent a separate reportable segment in accordance with IFRS 8.

Property operating profit includes the net decrease in fair value of investment properties of £37,385,000 and profit on disposal of investment properties of £666,000.

Non-trading exceptional items

Rationalisation, closure and other costs are predominantly associated with the deep mines operations and consist of care, maintenance and exploration costs for Harworth colliery of £2,150,000 and redundancy costs of £700,000.

All non-trading exceptional items are included in cost of sales.

2.         SEGMENTAL REPORTING continued

Year ended December 2009	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other**	Total
	£000	£000	£000	£000	£000	£000	£000
Continuing operations
Revenue - gross	197,157	53,409	250,566	67,842	6,690	1	325,099
Revenue - intra Group	(368)	-	(368)	(7,870)	(856)	-	(9,094)
Revenue - external	196,789	53,409	250,198	59,972	5,834	1	316,005
Operating (loss)/profit before non-trading exceptional items and net decrease in fair value of investment properties	(65,353)	(5,133)	(70,486)	1,853	1,229	(24)	(67,428)
Net decrease in fair value of investment properties	-	-	-	-	(25,704)	-	(25,704)
Operating (loss)/profit before non-trading exceptional items	(65,353)	(5,133)	(70,486)	1,853	(24,475)	(24)	(93,132)
Non-trading exceptional items
- Profit on sale of joint venture	-	-	-	-	-	6,534	6,534
- Rationalisation, closure and other costs	(5,052)	(13,890)	(18,942)	(355)	-	(307)	(19,604)
Operating (loss)/profit after non-trading exceptional items	(70,405)	(19,023)	(89,428)	1,498	(24,475)	6,203	(106,202)
Finance costs							(25,306)
Finance income							729
Net finance costs							(24,577)
Share of post-tax profit from joint ventures
- Property							1,331
- Coal4Energy							388
Loss before tax							(129,060)
Tax credit							1,513
Loss for the year							(127,547)
Other segmental items
Capital expenditure	69,843	-	69,843	264	8,272	132	78,511
Depreciation	28,359	1,318	29,677	2,330	163	65	32,235
Surface mines development costs and restoration assets capitalised	-	-	-	5,686	-	-	5,686
Amortisation of surface mining development and restoration assets	-	-	-	9,961	-	-	9,961
Provisions - non-cash charge/(credit)	3,808	9,414	13,222	(771)	-	20	12,471

* Closed/sold deep mines includes income and expenditure arising at the Welbeck and Harworth collieries. In 2010, Welbeck colliery was reclassified from ongoing deep mines to closed/sold deep mines and accordingly the comparative information has been restated to reflect this change.

** Other consists of operations not controlled by the mining or property businesses and unallocated central activities which do not represent a separate reportable segment in accordance with IFRS 8.

Property operating profit includes the net decrease in fair value of properties of £25,704,000 and loss on disposal of investment properties of £3,000.

Non-trading exceptional items

Rationalisation, closure and other costs are predominantly associated with the deep mines operations and consist of costs and income arising as a result of the closure of the Welbeck colliery of £10,456,000 (representing redundancy costs of £10,294,000, impairment of stores equipment of £3,487,000 and impairment of fixed assets of £629,000 offset by a pension curtailment of £3,954,000), the estimated cost of fines as a result of HSE investigations into recent deep mine incidents of £5,000,000, care, maintenance and exploration costs of £3,486,000 for the mothballed Harworth colliery and other redundancy costs of £662,000.

All non-trading exceptional items are included in cost of sales with the exception of the estimated cost of fines which are included within other operating expenses.

2.         SEGMENTAL REPORTING continued

Total assets
at June 2010
	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other**	Total
	£000	£000	£000	£000	£000	£000	£000
Segment assets	286,834	5,080	291,914	39,879	380,992	898	713,683
Investment in joint ventures	-	-	-	-	3,389	-	3,389
Total segment assets	286,834	5,080	291,914	39,879	384,381	898	717,072
Cash and cash equivalents (unrestricted)							3,010
Deferred tax asset							35,800
Total assets per balance sheet							755,882
Total assets
at June 2009
	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other**	Total
	£000	£000	£000	£000	£000	£000	£000
Segment assets	263,690	9,071	272,761	44,761	379,968	1,200	698,690
Investment in joint ventures	-	-	-	-	893	-	893
Total segment assets	263,690	9,071	272,761	44,761	380,861	1,200	699,583
Cash and cash equivalents (unrestricted)							9,350
Deferred tax asset							36,121
Total assets per balance sheet							745,054
Total assets
at December 2009
	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other**	Total
	£000	£000	£000	£000	£000	£000	£000
Segment assets	285,613	7,068	292,681	46,134	390,401	551	729,767
Investment in joint ventures	-	-	-	-	3,263	-	3,263
Total segment assets	285,613	7,068	292,681	46,134	393,664	551	733,030
Cash and cash equivalents (unrestricted)							13,587
Deferred tax asset							35,800
Total assets per balance sheet							782,417

* Closed/sold deep mines includes the assets of Welbeck and Harworth collieries. In 2010, Welbeck colliery was reclassified from ongoing deep mines to closed/sold deep mines and accordingly the comparative information has been restated to reflect this change.

** Other consists of operations not controlled by the mining or property businesses and unallocated central activities which do not represent a separate reportable segment in accordance with IFRS 8.

Cash and cash equivalents that are subject to restriction have been included within the appropriate segment, along with the related provisions.

3.         FINANCE COSTS AND INCOME

			6 months ended	6 months ended	Year ended
			June	June	December
			2010	2009	2009
			£000	£000	£000
Interest expense
-  Bank borrowings			(4,629)	(5,659)	(12,569)
-  Hire purchase agreements and finance leases			(686)	(307)	(998)
-  Unwinding of discount on provisions			(1,570)	(2,188)	(3,626)
-  Amortisation of issue costs of bank loans			(887)	(1,579)	(2,697)
-  Generator loans and prepayments			(4,166)	(728)	(4,000)
(Losses)/gains on interest rate swaps not eligible for hedge accounting			(568)	(65)	1,714
Amortisation of interest rate swaps recycled from reserves			(1,085)	-	(3,130)
Finance costs			(13,591)	(10,526)	(25,306)
Arrangement fees related to refinancing			(4,998)	-	-
Write off previously capitalised issue costs of bank loans			(2,743)	-	-
Fair value of interest rate swaps recycled from reserves			(2,206)	-	-
Exceptional finance costs			(9,947)	-	-
Finance income			152	368	729
Net finance costs			(23,386)	(10,158)	(24,577)

4.         TAX

The tax credit in the period is £1,193,000 (June 2009: £nil; December 2009: credit £1,513,000). This credit in the period relates solely to the deferred tax being recycled from reserves in relation to the fair value of interest rate swaps also being recycled to the income statement. No tax payments have been made and £538,000 was received during the period.

5.         DIVIDENDS

No dividends have been paid or proposed in relation to 2009. No interim dividend is proposed for the six months ended June 2010.

6.         LOSS PER SHARE

Loss per share has been calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of shares in issue and ranking for dividend during the period.

In calculating the diluted loss per share, the weighted average number of ordinary shares is adjusted for the diluting effect of share options potentially issuable under the Group's employee share option plans.

				6 months	6 months	Year
				ended	ended	ended
				June	June	December
				2010	2009	2009
				£000	£000	£000
Loss for the period				(92,015)	(81,524)	(127,547)
Weighted average number of shares used for basic and diluted loss per share calculations	299,298,160				157,252,747	175,008,424
Basic and diluted loss per share (pence)				(30.7)	(51.8)	(72.9)

7.         OPERATING PROPERTY, PLANT AND EQUIPMENT

Net book value			Operating	Surface mine
			property,	development
			plant and	and restoration
			equipment	assets	Total
			£000	£000	£000
At January 2009			181,801	28,479	210,280
Additions			30,513	3,020	33,533
Disposals			(45)	-	(45)
Depreciation charge			(17,876)	(6,832)	(24,708)
At June 2009			194,393	24,667	219,060
Additions			39,934	2,666	42,600
Disposals			(183)	(1,597)	(1,780)
Net transfer to investment properties			(161)	-	(161)
Impairment			(629)	-	(629)
Depreciation charge			(14,359)	(3,129)	(17,488)
At December 2009			218,995	22,607	241,602
Additions			17,680	2,040	19,720
Disposals			(6)	-	(6)
Net transfer to investment properties			(336)	-	(336)
Impairment			(223)	-	(223)
Depreciation charge			(15,541)	(4,332)	(19,873)
At June 2010			220,569	20,315	240,884

In addition to the above, the Group is committed to a further £28,999,000 of expenditure for operating property, plant and equipment.

In accordance with IAS 36, 'Impairment of Assets', tangible fixed assets are reviewed for impairment if there is any indication that their carrying amount may not be recoverable. An impairment review has been performed for the tangible fixed assets of the deep and surface mining business as a result of the significant operating loss recorded by the Group in the period.

Following the completion of mining at Welbeck colliery in the period, an impairment charge of £223,000 was required for its remaining fixed assets (June 2009: £nil; December 2009: £629,000). No further impairment charges were required. The estimates of recoverable amount were based on value-in-use calculations, using a pre-tax discount rate of 14% which reflects the specific risks of the business. These calculations use cash flow projections based on financial budgets approved by management covering a five year period. Cash flows beyond the five year period are extrapolated assuming a zero growth rate.

8.         INVESTMENT PROPERTIES

			6 months ended	6 months ended	Year ended
			June	June	December
			2010	2009	2009
At valuation			£000	£000	£000
At start of period			377,995	404,658	404,658
Additions			1,002	4,402	8,064
Disposals			(510)	(4,770)	(9,236)
Fair value adjustment			(10,132)	(37,385)	(25,704)
Transfer from operating property, plant and equipment			336	-	161
Revaluation (loss)/gain on transfer from operating property, plant and equipment			(122)	-	52
At end of period			368,569	366,905	377,995

In addition to the above, the Group is committed to a further £1,072,000 of expenditure for investment properties.

8.         INVESTMENT PROPERTIES continued

All investment properties were valued at June 2010, in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors, by three firms, BNP Paribas Real Estates, Smiths Gore and Bell Ingram, all independent firms with relevant experience of valuations of this nature. The valuation excludes any deduction of rehabilitation and restoration costs which are stated within provisions in the balance sheet.

Key assumptions within the basis of fair value are:

-  The sites will be cleared of redundant buildings, levelled and prepared ready for development.

- The values are on a basis that no material environmental contamination exists on the subject or adjoining sites, or where this is present the sites will be remediated to a standard consistent with the intended use, the costs for such remediation being separately provisioned.

- No deduction or adjustment has been made in relation to clawback provisions, or other taxes which may be payable in certain events.

9.         CASH AND CASH EQUIVALENTS

			As at June	As at June	As at December
			2010	2009	2009
			£000	£000	£000
Cash deposited to cover insurance requirements			15,847	19,094	19,104
Subsidence security fund			8,719	8,468	8,668
Total restricted cash balances			24,566	27,562	27,772
Other cash balances			3,010	9,350	13,587
Cash and cash equivalents			27,576	36,912	41,359

10.       BORROWINGS

			As at June	As at June	As at December
			2010	2009	2009
			£000	£000	£000
Bank loans, overdrafts and finance leases
Current			6,942	51,190	10,728
Non-current			166,194	101,729	117,194
			173,136	152,919	127,922
Generator loans and prepayments
Current			15,411	-	2,990
Non-current			71,532	47,284	64,619
			86,943	47,284	67,609
Total
Current			22,353	51,190	13,718
Non-current			237,726	149,013	181,813
			260,079	200,203	195,531

Borrowings at June 2010 are stated after deduction of unamortised borrowing costs of £948,000 (June 2009: £3,316,000; December 2009: £4,166,000).

During the period, the Group made repayments of £3,517,000 against borrowings. Additional finance lease facilities of £1,730,000 have been secured during the period.  The leases are due to be repaid in the period from 2011 to 2014. The balance of the movement in borrowings relates to the outstanding balance on a revolving credit facility which is due for repayment in July 2011 and is disclosed as non-current. In the period interest of £555,000 was capitalised to the Harworth Estates (Waverley Prince) Limited loan.

10.       BORROWINGS continued

As reported in the 2009 Annual Report and Accounts, the Group restructured its banking arrangements in the period.  The principal changes were to:

-    increase the amounts available under the £52,000,000 revolving credit facility ("RCF") by an additional line of up to £20,000,000, reducing over the winter period;

-    extend the maturity of the RCF to the end of July 2011 in line with the maturity date of the additional line;

-    modify the financial profile of the Harworth Estates (Waverley Prince) Limited term loan facility, including providing the Group with the ability to roll up interest in the period to June 2011. Repayment of this facility will be £12,000,000 in July 2011, together with rolled up interest, thereafter amortising at a rate of £2,500,000 per quarter until final repayment in July 2013; and

-    increase the effective interest rates on the Harworth Estates (Waverley Prince) Limited, Harworth Estates (Agricultural Land) Limited and RCF facilities.

A £10,000,000 unsecured stand-by facility from Peel Holdings Limited was also agreed in the current period, which is available for drawing in the event the RCF is fully drawn. This facility also expires at the end of July 2011.

During 2009, the Group entered into certain contracts for coal supply which resulted in increased cash flows to the business in 2009 and 2010.  These benefits together with accrued implied interest are treated as generator loans and prepayments, and will be repaid either out of later revenue or as separate repayments in the period commencing in October 2010 and ending in 2015.  Interest is charged on these outstanding amounts using actual or implied interest rates. At June 2010, these generator loans and prepayments were not fully drawn. When fully drawn, the average interest rate on these balances will be 11%.

11.       PROVISIONS

	At December	Created	Released	Utilised	Unwinding	At June
	2009	in period	in period	in period	of discount	2010
	£000	£000	£000	£000	£000	£000
Employer and public liabilities	16,181	1,291	-	(2,996)	-	14,476
Surface damage	13,210	2,500	-	(916)	251	15,045
	29,391	3,791	-	(3,912)	251	29,521
Claims	15	-	-	-	-	15
Redundancy	9,067	86	-	(2,686)	-	6,467
Restoration and closure costs of surface mines	39,261	-	-	(8,004)	865	32,122
Restoration and closure costs of deep mines:
-  shaft treatment and pit top	10,311	-	-	-	195	10,506
-  spoil heaps	2,892	-	-	-	55	2,947
-  pumping costs	5,433	-	(1,088)	-	103	4,448
Ground/groundwater contamination	5,337	-	-	-	101	5,438
	101,707	3,877	(1,088)	(14,602)	1,570	91,464

The nature of the Group's obligations is as disclosed in the Annual Report and Accounts for the year ended 26 December 2009.

Restricted funds of £24,566,000 have been set aside to meet the liabilities due on the employer and public liabilities and surface damage provisions above.

Provisions have been allocated between current and non-current as follows:

				As at June	As at June	As at December
				2010	2009	2009
				£000	£000	£000
Provisions payable within one year				29,020	28,106	38,556
Provisions payable after more than one year				62,444	77,346	63,151
				91,464	105,452	101,707

Provisions are expected to be settled within the timescales set out in the following table:

					More than
		Within 1 year	1-2 years	2-5 years	5 years	Total
		£000	£000	£000	£000	£000
Employer and public liabilities		6,745	3,036	4,503	192	14,476
Surface damage		3,377	3,010	6,309	2,349	15,045
		10,122	6,046	10,812	2,541	29,521
Claims		15	-	-	-	15
Redundancy		6,467	-	-	-	6,467
Restoration and closure costs of surface mines		10,777	12,146	3,600	5,599	32,122
Restoration and closure costs of deep mines:
-  shaft treatment and pit top		1,451	2,133	259	6,663	10,506
-  spoil heaps		188	1,231	132	1,396	2,947
-  pumping costs		-	-	-	4,448	4,448
Ground/groundwater contamination		-	-	-	5,438	5,438
		29,020	21,556	14,803	26,085	91,464

12.       RETIREMENT BENEFIT OBLIGATIONS

The balance sheet amounts in respect of retirement benefit obligations are:

				As at June	As at June	As at December
				2010	2009	2009
				£000	£000	£000
Industry wide schemes				189,476	162,501	185,954
Concessionary fuel				36,801	33,486	34,879
				226,277	195,987	220,833

Industry wide schemes

The amounts recognised in the consolidated balance sheet are as follows:

				As at June	As at June	As at December
				2010	2009	2009
				£000	£000	£000
Fair value of plan assets				386,832	318,207	380,621
Present value of funding obligations				(576,308)	(480,708)	(566,575)
Net liability recognised in the balance sheet				(189,476)	(162,501)	(185,954)

The amounts recognised in the consolidated income statement are:

				6 months ended	6 months ended	Year ended
				June	June	December
				2010	2009	2009
				£000	£000	£000
Current service cost				(7,511)	(5,823)	(11,451)
Interest cost				(16,176)	(12,761)	(25,559)
Expected return on plan assets				13,172	10,261	20,730
Effect of curtailment or settlement				-	-	3,954
				(10,515)	(8,323)	(12,326)

Current service cost is charged to cost of sales, with interest cost less expected return on plan assets included as part of administration expenses within other operating expenses and the effect of curtailment or settlement is included in non-trading exceptional items.

12.       RETIREMENT BENEFIT OBLIGATIONS continued

Concessionary fuel

The amounts recognised in the balance sheet are as follows:

				As at June	As at June	As at December
				2010	2009	2009
				£000	£000	£000
Net liability recognised in the balance sheet				(36,801)	(33,486)	(34,879)

The amounts recognised in the consolidated income statement are:

				6 months ended	6 months ended	Year ended
				June	June	December
				2010	2009	2009
				£000	£000	£000
Current service cost				(257)	(220)	(441)
Interest cost				(991)	(948)	(1,890)
				(1,248)	(1,168)	(2,331)

Current service cost is charged to cost of sales and interest cost is included as part of administration expenses within other operating expenses.

13.       RELATED PARTY TRANSACTIONS

In January 2009 the Group sold the 50% shareholding in Coal4Energy Limited to the joint venture partner, Hargreaves Services PLC, for £9,000,000 realising a profit of £6,534,000.

During 2009 the Group acquired 50% of the issued shares in Bates Regeneration Limited as a joint venture company with Banks Property Limited for the development of an investment property at Blyth, Northumberland.

Investments in joint ventures
			As at June	As at June	As at December
			2010	2009	2009
			£000	£000	£000
UK Strategic Partnership Limited			1,004	893	913
Bates Regeneration Limited			2,385	-	2,350
			3,389	893	3,263
Transactions with joint ventures
The following transactions were carried out with joint ventures, in the case of Coal4Energy Limited for January 2009 only:
			6 months ended	6 months ended	Year ended
			June	June	December
			2010	2009	2009
			£000	£000	£000
Bates Regeneration Limited
Sale of land to related party			-	-	750
Coal4Energy Limited
Sale of goods and services to related party:
- Coal			-	5,600	5,600
- Services			-	84	84
			-	5,684	5,684

Sales and purchases to and from the joint ventures were carried out on commercial terms and conditions and at market prices.

Balances owing from/(to) joint ventures

UK Strategic Partnership Limited and Bates Regeneration Limited

The balances arising from sales of goods and services at June 2010 were £nil (June 2009: £nil; December 2009: £nil) owing from the joint ventures, and there are no balances arising from purchase of goods and services at the period ends.

Peel Holdings Limited

A £10,000,000 unsecured stand-by facility from Peel Holdings Limited was agreed in the current period, which is available for drawing in the event that the revolving credit facility is fully drawn. The facility expires at the end of July 2011.

14.       CONTINGENT LIABILITIES

Guarantees have been given in the normal course of business for performance bonds at June 2010 of £3,775,000 (June 2009: £4,343,000; December 2009: £4,265,000) to cover the performance of work under a number of Group contracts.

The Group has provided a guarantee for an insurance bond for £10,000,000 (June 2009: £10,000,000; December 2009: £10,000,000) which is used as security to cover surface damage liabilities.

There are no other material contingent liabilities at June 2010 (June 2009: £nil; December 2009: £nil) for which provision has not been made in these financial statements.

 

END

 

 

IR EAPPLALKEEFF