Bottom Line: Budge braves the pitfalls

RJB MINING has always made it clear that the purpose of its pounds 50m flotation, valuing the company at pounds 103m, is not to raise money directly to buy British Coal mines.

The money raised now will be used to reduce debt incurred in the company's buyout at the beginning of 1992 and to buy pounds 23.5m worth of shares from existing holders.

RJB is a successful enough open-cast coal operator and plans to bid for more contracts. But Richard Budge, chief executive, makes no secret of wanting to expand by buying mines that were on British Coal's closure list - cheered on by the Union of Democratic Mineworkers. The main question this raises is, why does he think he can make money on them when British Coal thinks it cannot?

He has some experience of deep mining, having run such mines in the US for a time in the 1970s. He will cut manning levels at former British Coal pits, try to boost the morale of the men who remain, and find new markets for smokeless and domestic fuel. There is talk of this creating demand for an extra 5 million tonnes.

Industry watchers are sceptical. If the Government and all the experience of British Coal cannot pull extra demand out of the air, how can Mr Budge? The City, which has already forced him to reduce his proposed salary from pounds 400,000 to pounds 225,000, may also be sceptical.

RJB will certainly be back for more money from shareholders if its deep-mining ambitions come to fruition. The issue price of 250p, announced yesterday, therefore looks suitably defensive.

A 1992 p/e of 11 and a dividend yield of 5.75 per cent, both a hefty discount to stock market averages, acknowledge the risk that RJB's expansion plans may land it and its shareholders in a deep hole.

Not for the shock-averse.