UK Coal seeks lender to join GE and Lloyds

Landsbanki, the nationalised Icelandic bank, will no longer back the mining company's 'revolver' facility
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UK Coal, the country's biggest coal mining company, is in negotiations with its banks over a key lending facility following the nationalisation of the Icelandic bank Landsbanki.

The listed mining firm's £52m "revolver" facility, which works much like an overdraft, is backed by three banks including GE and Lloyds Banking Group. The third, Landsbanki, intends to pull out when the facility expires in September 2010, as a result of its international retrenchment.

UK Coal has hired adviser Close Brothers to negotiate an extension to the facility, used to cover short-term working capital needs such as buying equipment. The existing revolver lasts three years, and the firm's board, led by chief executive Jon Lloyd, will look to extend this to 2014.

An industry source said that the firm had identified a "handful of parties" to replace Landsbanki. Lloyds, which is the lead bank, and GE will still cover two-thirds of the revolver. UK Coal also wants to raise the facility's limit to around £70m.

The company has been struggling with the collapse in commodity and property values. A former FTSE-250 company, UK Coal is now just outside that index, with a market capitalisation of around £220m.

UK Coal's capital expenditure programme is largely funded through its property business, Harworth Estates, which seeks planning permission for residential schemes and then sells the land off at a profit to developers.

The value of its property portfolio, which spans 45,000 acres, has decreased during the slump. The land was valued at £422m at 31 December, but is now worth £385m.

In April, UK Coal announced that it had negotiated new and revised contracts with customers, including electricity giants E.ON and EDF Energy, that will result in £100m of cashflow brought forward. This will be used to develop mines that would usually be funded through the property profits.

In a trading statement last month, UK Coal forecast that pre-tax loss for the first half of 2009 would be £82m, up from just £9.9m for the same period in 2008. Net debt is around £145m, up from £137.1m in December. However, UK Coal hinted at improvements in sales, stating that the average price was "marginally above" expectations.

UK Coal was created in December 1994, when RJB Mining bought the English coalfield assets of government-owned British Coal for £815m.

The company supplies coal accounting for 6 per cent of the UK's electricity generation and has nine mines, four of which are sub-surface. It employs 3,100 people and estimates that it has more than 90 million tonnes of coal reserves.

The company's share price closed at 139.75p on Friday, down 1.24 per cent on start of the day's trading. Last August, shares were trading at 435p, but investors sold heavily in September and November as the coal price fell.