ATH hails the return of King Coal - [Sunday Herald]

Hopes that Scotland can still play a key role in a long- anticipated resurgence of the UK coal industry should gain a boost this week when opencast mining group ATH Resources outlines plans for further expansion and announces that it is on course for record profits this year.
The confident statement from ATH chief executive Tom Allchurch is likely to provide a welcome contrast to the recent decision by Alloa-based Scottish Coal to mothball one of its opencast mines in Lanarkshire, with the loss of 150 jobs, because of rising costs.
Despite booming demand for coal, ATH was the only major mining company to make a profit last year as its rivals struggled to cope with the effects of long-term fixed-price supply contracts and sharply increased bills as a result of a hike in diesel prices.
Market leader UK Coal chalked up £62 million losses as it failed to get planning permission to replace worn out English fields, while Scottish Coal, with eight remaining Scottish mines, turned in a loss of just over £500,000.
In contrast, ATH recorded a pre-tax profit of £5.7m from its two major operations in East Ayrshire and analyst Charles Kernot at Seymour Pierce believes the company is on course to raise the tally to around £7.5m in the current year.
“ATH is a special case because it managed to hedge most of its fuel bills over the critical winter period and, as a relatively new supplier, it has been able to negotiate more attractive contracts with the power companies,” said one industry source.
“But, like the others, it could do with assistance from the government to help it to compete more effectively with cheap imports coming from the likes of Russia and South Africa.”
The mining companies all complain that government taxation means they are having to pay far more than competitors for the diesel needed to fuel extracting equipment, and also complain about planning difficulties in getting permission to start new and more economic opencast and drift mines.
It has been particularly difficult in England where UK Coal now has only one remaining surface mine compared with 20 at the time of privatisation, but the Scottish Executive has also adopted a tougher stance through its Scottish Planning Policy 16 guidance document issued last year.
The combined effect saw domestic coal production slump 18% last year, despite record demand from the generating companies whose coal-fired plants can now produce electricity far cheaper than those using other energy sources.
That competitive advantage resulted in more than 50% of all electricity coming from coal-fired plants over the winter though it has since dropped back to more normal levels of around 32%.
Up to now, the government has been decidedly lukewarm over the long-term future of coal-fired plants because of their effect on greenhouse gas emissions and a long-standing target to cut back coal-fired production to just 16% by 2020.
But moves to clean up the production process – including new desulphurisation techniques at Scottish Power’s Longannet plant – have raised expectations that environment minister Malcolm Wicks may well suggest a rethink in his Energy Review, which is to be delivered to Tony Blair next month.
The mining companies believe that it could be time for some arm-twisting to ensure that generators take a bigger share of domestic production – even if it means they have to pay a higher price.
In its submission to the Department of Trade and Industry, UK Coal argued for coal prices to be based on longer-term considerations rather than simply relying on global markets.
“Public policy for security of energy supply and affordable electricity must take priority over the short-term commercial interests of individual generators,” it argued.
The company complained that generators were typically willing to pay around £9.60 a tonne more for quality coal from abroad rather than take domestic supplies (although it is understood that it has had some success in negotiating fresh deals in recent weeks).
A major test for the industry will come over the next few months, with Scottish Coal and ATH submitting plans for new opencast mines along with extensions to existing operations.
In the meantime, both are aiming to establish their green credentials with a series of measures, including an increased usage of biodiesel produced from renewable sources.
Scottish Coal, in particular, has high hopes for its fast-growing plantations of willow trees that will be mixed with coal to produce biofuels, while ATH has bought into a new business which washes coal from old slag heaps which can then be sold, freeing up areas for landscaping.
Despite increasing optimism over current prospects for the industry, few believe that traditional deep mining will return to its past prominence, even after making allowance for higher prices.
Disused mines, in particular, are notoriously difficult to return to production and, because of flooding, Scottish Coal’s big operation at Longannet could cost as much as £60m to be returned to a productive stage.
Analysts point out that the more profitable opencast mines also have their own drawbacks in the shape of an extremely short lifespan .
Both of ATH Resources’s major Scottish outlets, for example, are due to run out over the next two or three years unless current planning applications get official approval and directors could concentrate on their significant prospects in France for future growth if current expansion plans should stall.
11 June 2006
Got something to say about this story? Write to the Editor