RJB signs pounds 1.3bn power deal
Wednesday 14 April 1999
The power group has agreed to buy up to 28 million tonnes of RJB coal over the next four years. The new contract will be added to a previous deal for 18 million tonnes, bringing the total coal to be supplied by RJB to National Power to 46 million tonnes.
The coal will go to three of National Power's biggest stations: the Drax in North Yorkshire, the Eggborough plant in East Yorkshire and the Didcot generator in Oxfordshire.
National Power said the deal would not be affected by its decision to sell Drax in return for regulatory clearance to acquire the regional electricity supplier Midlands Electricity.
The coal contract, which follows similar deals with other electricity companies, including PowerGen and Eastern, eases fears of thousands of redundancies among RJB's 9,000 workforce.
The jobs of many of the group's employees have been under threat in recent years as the spread of gas-fired power stations and import of cheaper coal caused a slump in RJB's sales and profits.
The chief executive, Richard Budge, yesterday stopped short of pledging that there would be no redundancies, but he said that the National Power deal would enable the company "to plan our mining operations in the most cost-effective way for some years to come".
The City welcomed the deal, sending RJB shares 5p higher to 67p. "[The new contract] means they will be able to support coal production at reasonably healthy levels through to 2003. It secures coal sales of more than 20 million tonnes over four years," one analyst said.
Others noted that the recent string of deals had won RJB a welcome breathing space. They said the company should use this to cut costs and expand overseas in order to hedge against the long-term decline of the UK coal market.
Sceptics doubt that internal restructuring and investment abroad will be enough to combat the problems of the UK coal industry. Domestic deep- mined coal is still far more expensive than imported material and gas- fired electricity. The recently-announced government ban on the construction of gas-fired stations should help in the long term, but in the short run there is enough gas to wipe out another 12 million of coal demand.
These worries are all in RJB's share price, which has plummeted from a year's high of 139.5p. It is now on just five times 1999 earnings of about pounds 28m. With the medium term looking more secure, RJB is worth a speculative punt.
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