Costain plan to dispose of coal operation shocks City

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COSTAIN, the struggling construction company, shocked the City by announcing the proposed sale of its US coal mining arm only a year after tapping shareholders for pounds 84m to invest in the business.

More than 10 per cent was knocked off the value of the company as the shares closed 3p lower at 24.5p. Analysts said Costain was unlikely to receive more than pounds 150m for the business, compared with a book value of pounds 200m.

A pounds 9.8m loss from the US coal business pushed the group into the red for the six months to June. The pre-tax loss of pounds 14m compared with a pounds 68.1m profit in 1993 when the result was boosted by an exceptional pounds 68.5m profit from the sale of discontinued operations.

Sir Christopher Benson, chairman, said: 'The time is right to proceed with the sale of our coal interests. This will provide the group with the flexibility to develop its highly-focused international engineering and construction business.'

According to Peter Costain, chief executive, operating problems in the US increased during the first half. Sales fell sharply after geological problems and poor weather affected production.

Mr Costain added that the division's management was partly to blame and Tom Parker, president, was leaving the company as a result of the poor performance. The result would not affect the price achieved for the business.

Analysts expressed surprise that the business had been put up for sale so soon after last year's five- for-four rights issue.

Many felt shareholders were persuaded to take up rights because they believed they were investing in a highly-geared coal- mining play. The disposal of the operation, after the sale of many other peripheral businesses, means Costain has returned to its roots as a pure contracting business.

The cash call, at 30p a share, was the second in two years. Shareholders had previously subscribed to a two-for-seven rights issue at 155p to raise pounds 77m.

There was a loss per share of 3p compared with earnings last year of 28.5p. No dividend was paid.