Production on the rise but British Coal sees its debt increase

Britain's biggest coal mining firm has seen its debt rise despite increasing production over the past year.

UK Coal yesterday reported that it had extracted 7.2 million tonnes in the year to 25 December, a 3 per cent increase on the previous year, but said net debt at the end of December totalled 243 million, up from 182m in the same month of 2009.

The company, which opened more productive seams at its mines in 2010, originally aimed to produce 7.3 million tonnes last year, but suffered a set-back in November when it was forced to shut a pit in Kellingley, North Yorkshire, for three weeks, following reports of dangerous levels of methane gas.

Production at Kellingley was flat in the final quarter of 2010 but total output from on-going deep mine operations nearly doubled to 1.8 million tonnes compared to one million tonnes the previous year, thanks to strong performances from the Doncaster-based company's two other deep mines. Its surface mines also saw a slight increase in production in the quarter from 400,000 to 500,000 tonnes.

UK Coal said it expected to make a "small loss" on property sales during the year, despite sales worth 28.5m, and added that it was expecting a non-cash revaluation loss of about 30m for the year, "reflecting the market for larger residential development sites."

UK Coal, which bought the English assets of British Coal for 815m in 1994 when the state-owned business was privatised, owns around 30,000 acres of agricultural land and is in the process of selling 8,000 acres of this to property developers.

The company also said its workforce lost 20 per cent less time to injuries last year as it continued to focus on safety. The company's chief executive and finance director saw their salaries frozen and bonuses cut in April following the deaths of two workers in 2009.

UK Coal's share price fell nearly 6 per cent yesterday, to close at 52p.

John Mcgloin, mining analyst at Collins Stewart, said: "UK Coal continues to run a very high net debt of 243m, up 34 per cent year on year. Overall, investors can take a small positive from the production hitting guidance, but the group is not out of the woods yet given the lagging property market and high debt burned to reverse."

But Charles Kernot, an analyst at Evo Securities, said: "UK Coal can look forward to a new chapter now that the problems of 2010 and previous years are behind the group.

"It has successfully negotiated its way through the issues of low coal prices and a collapsing property market.

"While this leaves it with high levels of debt and a significant pension liability, the group is now in a position to generate enough cash to repay borrowings and fund the pension before its deep mine reserves are exhausted."