Doubt on coalfields funding deepens

COAL INVESTMENTS, the company run by Malcolm Edwards, former commercial director of British Coal, is prepared to rebid for the English coalfields if the preferred buyer, RJB Mining, fails to raise the money it needs.

Speculation has mounted that RJB will find it difficult to finance its pounds 900m bid for the bulk of the coal industry in England, due to be completed by Christmas.

RJB, founded by Richard Budge, has offered to pay the Government hundreds of millions of pounds more than its rivals. Coal Investments is thought to have bid pounds 510m for two of the English coalfields and to have valued all three at less than pounds 600m.

English Coal, a management buyout wanting all three English coal regions, also put the price at less than pounds 600m.

BZW, the advisers to RJB, said it was confident it could raise the money for the bid. Mr Budge said the fund-raising would probably be completed by late November.

RJB and the company's advisers are said to be planning a pounds 400m share issue, which would include offering shares to the public. The rest of the pounds 1bn would be provided by bank debt.

Mr Budge said the company's advisers had give the DTI 'letters of high confidence' that they would be able to raise the equity element of the financing requirements.

But sources in the coal and electricity industries say that Mr Budge has been over-optimistic about the size of the market for coal towards the end of the decade and beyond.

There has been a resurgence recently in gas-fired electricity generating projects, which means that coal sales to the generators, National Power and PowerGen, could decline sharply after their present coal supply contracts expire in 1998.

Mr Edwards said: 'Life has got a lot worse for the coal industry since the bids were originally prepared.' An electricity industry source said Mr Budge seemed to be projecting 'way over what the electricity industry is likely to buy'.

The generators, faced with a new monopoly to replace British Coal, are also thought to be concerned that Mr Budge will try to charge very high prices for the coal as he tries to service his company's debt.

There is also disagreement in the industry about the value of millions of tons of coal already mined and stockpiled at pits, which is included in the sale. RJB Mining puts the value of these stocks at about pounds 300m but others believe the value to be nearer pounds 200m.

Separately, it has emerged that millions of tons of these coal stocks have been sold to at least one of the generators at fire sale prices before the announcement by the Government last week of the preferred bidders for the mines.

Industry sources said it was likely that the coal was sold at prices as low as 60p or 70p per gigajoule, which compares with a world price of at least pounds 1.

One electricity industry source said that the coal had certainly been supplied at a very good price.

Companies that had bid against RJB now fear that its advisers will try to argue the Government down on price before the sale is complete.

It would prove extremely embarrassing if RJB ultimately takes over the English coal industry in its entirety at very little more than its competitors were prepared to pay.

(Photographs omitted)