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UK Coal Plc: Preliminary Financial Results for Year Ended December 2009

Monday, April 26th, 2010

– Key strategic steps taken
– New long-term supply contracts and new generator customer
– Production profile of deep mining transitioned
– New seams. Substantially increased development driveage
– Management team strengthened
– Appointment of Group Director of Mining. Safety Director appointed
– £100 million net equity issue
– Continued good planning progress by Harworth Estates helped off-set property market conditions
– RICS valuation of property portfolio £394m (2008: £422m). £12m increase in valuation in H2
– Estimates of Project Worth value – 2012: £615m. 2014: £820m
– Financial results impacted by reduced Q4 production. Subdued market price for coal
– 2009 production 7.0mt (2008: 7.9mt)
– Average coal sales price down 2.6% to £1.87/GJ (2008 £1.92/GJ)
– 2009 Financial results
– Total revenue £316.0m (2008: £392.5m)
– Operating loss before non-trading exceptional items and property revaluation decrease £67.4m (2008 £1.8m profit)
– Non-cash property revaluation decrease £25.7m (2008: £-)
– Loss before tax £129.1m (2008: £15.6m)
– Net assets £152.8m (2008 £300.4m)
– Net debt £181.9m (2008: £137.1m) including generator loans and prepayments
– Net debt £114.3m (2008: £137.1m) excluding generator loans and prepayments
– Continued production issues Q1 2010. Issues now addressed
– Q1 2010 production 1.0mt (Q1 2009: 1.7mt)
– Kellingley and Thoresby producing from new seams
– Both able to return to at least historic production volumes
– Daw Mill ramping-up on new face
– Up to £30m increased financial facilities to increase headroom
– Intention to dispose of non-core agricultural acreage and explore increased joint-venturing of property development
– 2010 production guidance of around 7.6m tonnes
Commenting, David Jones, Chairman said:
“2009 has been an extremely challenging year for the Group.
“We took big strides in transitioning the production profile of our deep mining business, a transition which has been substantially completed in the current year with the commencement of production from the new seams at Kellingley and Thoresby. We put in place new long-term supply contracts on significantly improved terms with our electricity generator customers and added a major new customer, Scottish and Southern Energy. We also further strengthened our executive team with the appointment of a Board level Director of Mining, Gareth Williams, who brings considerable international mining experience to the Group. The positive effect of this appointment is already being felt. This followed the appointment of a dedicated, executive level, Safety Director. Together, these steps hold the potential to transform the safety, performance and profitability of our deep mining business, and we shall continue working hard to these ends during 2010 and beyond.
“In parallel, although the current market conditions have affected property valuations, our property business has continued to perform well in progressing planning and has the ability to deliver very considerable up-lifts in value. Our Project Worth central case estimates the worth of our property in 2012 at £615 million and in 2014 at £820 million, which compare to the RICS valuations at December 2009 of £394 million.
“With that background, we approached our shareholders, together with new institutional investors, last autumn and secured a net £100 million capital raising, in order to finance the completion of the investment programmes in our mining business and to create a more stable financial position for the Group.
“As we have previously reported, however, our financial results for last year have been substantially affected by geological issues in each of our deep mines, which significantly reduced production volumes and did so against the background of a subdued market price for coal in Europe. These difficulties were exacerbated in the last quarter by equipment unreliability and failures, noting in particular the incident leading to the loss of a life at Kellingley. These geological issues continued into the current year until the new seams at Kellingley and Thoresby, and the new face at Daw Mill, have been brought into production. This has inevitably reduced first quarter production compared to the same period last year.
“With Kellingley now in full production in its new seam, Thoresby ramping up in its new seam and with Daw Mill having started its ramp up, we believe that the particular difficulties which have affected us over the past months are now behind us. We therefore look forward to increasing production volumes, and for the business to see the benefit of an improved market price for coal.
“However, the lower production volumes to this point, and the consequential deferral of contract delivery commitments, have somewhat delayed the timing of when we will fully benefit from the new supply contracts that we have put in place. As a result, our cash performance has been significantly affected and our debt has increased with insufficient headroom for the Group, in particular over the next seven months’ peak funding period.
“To address this, we have increased our loan facilities by up to a further £30 million and extended the term of these facilities. We consider our debt levels too high and therefore intend to take advantage of the current strong market values for agricultural land to pursue the disposal of a significant proportion of our agricultural estate and to explore joint-venturing the development of a larger part of our brownfield land portfolio with the objective of reducing the absolute levels of bank debt and associated costs.
“The financial results for 2009 are not those we planned for. We have, however, now completed the developments of the new seams at Kellingley and Thoresby, and the output rates from these faces are indicating that they should achieve their expected production levels. We have also commenced the ramp-up of the new face at Daw Mill, and we believe this mine too should return to its high historic production levels. We expect to see all the ongoing deep mines increasing their production levels over the next month to full production, with an expectation of achieving production in 2010 of around 6 million tonnes from deep mines and a further 1.6 million tonnes from surface mines.
“Our property business is performing in line with expectations and continues to hold the ability to deliver considerable shareholder value. The planned disposals of agricultural acreage are expected to help reduce the Group’s indebtedness, while we also pursue our brownfield planning and joint venturing strategy.
“The combination of a modern, efficient mining business with the ability to access the terms of our improved supply contracts and generate substantial profits and cash flows, together with the potential of our property portfolio, has the ability to deliver considerable shareholder value, and we are determined to realise this”
(Ref 1113)

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