Interim Management Statement

RNS Number : 0716G

UK Coal PLC

17 October 2008

 



For immediate release                        

17 October 2008

UK COAL PLC ('UK COAL')

Interim Management Statement

UK COAL today issues its Interim Management Statement for the period from 30 June 2008 to the date of this announcement, incorporating a trading update for the third quarter ended September 2008, together with an outlook statement for the full year. Other than the information contained in this Interim Management Statement there have been no material events or transactions in the period from 30 June 2008 to 16 October 2008 which have affected UK COAL and its financial position.

Third quarter production from all mining operations was 1.8 million tonnes (2007 Q3: 2.3 million tonnes), making year-to-date output of 5.5 million tonnes (2007 YTD: 6.1 million tonnes excluding Maltby).  

Output in the third quarter, and in particular in September, was behind original expectations for all four deep mining operations, for unconnected reasons, with the surface mining operations being affected by wet weather. 

Despite the recent reduction in the dollar value of the world coal price, partly offset by the fall in the relative value of sterling, the market price of coal remains at historically very high levels. The average realised sales price for the third quarter was circa £2.30/GJ, significantly above our previous expectation of circa £1.95 to £2.00/GJ for the second half as a whole, and making an average for the year-to-date of circa £1.97/GJ. The higher than expected sales price partly offset the lower than expected production in the quarter and our mining operations were profitable for each month in the quarter.

Revenues for all businesses for the third quarter are circa £119 million, and for the year-to-date circa £292 million (2007 Q3: £94 million and 2007 YTD: £240 million).

Deep mine operations 

Deep mines output in the third quarter was 1.5 million tonnes (2007 Q3: 1.9 million tonnes).

As we have previously advised, Kellingley and Thoresby continue to mine in very difficult geological conditions as they work through the last of their current seams. The investment programmes to open up the new Beeston and Deep Soft seams in Kellingley and Thoresby in mid and late 2009 respectively remain on track. These programmes will enable the mines to access their further substantial reserves at much improved and predictable production rates in order to provide improved production volumes and economics.

Surface Mine Operations

Surface mine operations output in the third quarter was 0.3 million tonnes (2007 Q3: 0.3 million tonnes).

During the third quarter we received planning consent for a new circa 2 million tonne surface mine at Potland Burn in Northumberland. This is expected to start producing in 2010, after environmental pre-conditions are met, with full production at a rate of 0.3 to 0.4 million tonnes per annum from 2011.

Applications for planning consent for two other prospective surface mine sites, Blair House in Fife (0.7 million tonnes) and Park Wall North in Durham (1.2 million tonnes), are also well advanced and planning committee decisions are expected before the year end. 

Property

During the third quarter, the Planning Committee of Wakefield Council resolved to grant planning permission for our major mixed use scheme consisting of 913 houses and 250,000 sq ft of business space at the former Prince of Wales mine site. We expect the Government to confirm that approval shortly.

Similarly, the Planning Committee of South Leicestershire resolved to approve a planning application for circa 589,000 sq ft of distribution and industrial space at our site at Coalville.   The Government office for the region is expected to give a decision as to whether the consent can be issued, before the year end.

Planning applications were submitted in the third quarter for our site at Waverley for a new community of 3,900 homes and for 650,000 sq ft of offices for a Government Campus scheme, the latter in joint venture with Helical Governetz.

Net Borrowings

Overall net debt (excluding restricted cash balances) at 30 September 2008 was circa £150m (30 June 2008: £145m).

Expectations for the remainder of 2008 

While output in the third quarter, and in particular in September, was reduced in part by non-recurring events, poor geology has continued to affect output at Kellingley and Thoresby. As a consequence, we believe that full year sales will total around 8 million tonnes, compared to earlier expectations of around 8.7 million tonnes (2007: 7.8m tonnes, excluding Maltby). We expect full year Deep Mine sales will be no more than 6.2 million tonnes and Surface Mines will realise circa 1.8 million tonnes. 

In revenue terms for the full year, until recently we expected that part of this output shortfall would have been offset by higher than expected realised average sales prices. However, following the recent fall in the market price of coal we now expect an average fourth quarter sales price of £1.85 to £1.90 /GJ, taking fixed price contracts into account, making the average out-turn for the full year within our previously announced range of £1.90 to £1.95/GJ, rather than higher than this range as it might have been. 

The world coal price has recently dropped from over $190 per tonne at the end of August for H2 2008 deliveries to $129 per tonne as of 14 October 2008 for Q4 2008 deliveries. At an exchange rate of circa £1:$1.75, this converts into a current UK market price of around £3/GJ. Compared to previous years, and indeed to the start of 2008 when the world coal price was around $118/tonne or £2.35/GJ at £1:$2, this remains a very high market price. However, very significant amounts of our deliveries are still contracted at prices historically fixed well below this level. The volume of these older contracts is set to fall sharply after next year. 

The changes in the production outlook for the year, coupled with the market price for coal, lead us to conclude that our overall results for the year will be significantly below our previous expectations.

It is disappointing that the geological conditions at Kellingley and Thoresby are likely to keep run-rate of production at these mines lower than we have previously expected until they can access their new seams towards the end of next year. This, and the recent drop in market price of coal from its record levels earlier this year, has a direct impact. However, the current and expected future market prices of coal are far higher than in the past and this, coupled with the run-off of the old legacy contracts, is thoroughly positive for the longer-term future of our business. 

For further information please contact:

Media:

Anthony Carlisle, Citigate Dewe Rogerson

Tel: [phone] Mobile: [phone]

Analysts and investors:

Jon Lloyd (Chief Executive, UK COAL)	Tel: [phone]
David Brocksom (Finance Director, UK COAL)	Tel: [phone]
Nick Cox-Johnson (Citigate Dewe Rogerson)	Tel: [phone]

 

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