Doubt cast on future of UK deep mining

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UK Coal may close its 13 deep mines, threatening more than 6,300 jobs, it revealed yesterday.

The former RJB Mining delivered a profits warning after being hit by production difficulties at two of its deep mines. It said: "The long-term viability of the deep mine business continues to be examined." UK Coal, which ousted the chief executive, Richard Budge, earlier this year, said the deep mines' output continued to come in below expectations.

These are now likely to supply 8 million tonnes in the second half of this year, just above the 7.6 million tonnes produced in the first six months of 2001, and well below the 9 million tonnes expected by analysts. Charles Kernot, of BNP Paribas, said that the news knocked about £30m off expected turnover for the second half.

"Rather than breaking even in the second half, we are now looking at a loss," he said. Mr Kernot said that mines at Selby, in North Yorkshire, and Rossington, near Doncaster, looked most vulnerable. "They'll review on a colliery-by-colliery basis, to see whether they have any chance of making a profit and shutting those that don't."

However, it is thought that UK Coal would need to keep open Clipstone, near Mansfield, and Ellington, in Northumbria, for now because recent Government grants stipulated this. The company is carrying out a cost-cutting programme known as Project 105.

UK Coal said that production had been hampered by a delay in starting work on new reserves at Daw Mill Colliery, near Coventry. There has also been a loss of output at Rossington over 12 weeks, due to industrial action. Production will recommence at Rossington this week.

UK Coal shares dropped 9 per cent to 89p. It said: "The company has identified mines where there is potential for significant improvements in productivity to be achieved and is reviewing those operations where geological or other uncertainties increase the risk of uneconomic production."

Deep mining employs the bulk of UK Coal's 8,000-strong workforce and produces most of its output. The group also has 15 surface mines that produce about 4 million tonnes a year.

On the positive side, UK Coal said that it was making progress on Project 105 and on its property portfolio, which is to be developed for non-mining uses. It also said that cash flow for the year remains strong. Analysts said this meant the dividend was unlikely to be slashed.