UK Coal avoids colliery closure after agreeing four-year deal with EDF

UK Coal staved off the closure of its Thoresby colliery yesterday by signing a four-year supply agreement with EDF Energy.

Without the contract, the mine had about 18 months of extractable coal left before it would have had to be shut.

The deal to supply 4 million tonnes of coal to EDF's power stations in Cottam and West Burton in north Nottinghamshire between 2009 and 2012 means that the company will move ahead with a £55m scheme to access a total of 12 million tonnes of coal in deeper seams at Thoresby. The company said it will extend the life of the mine by another decade.

Following on its £140m joint venture signed last month with Helical Bar to build a new government campus on the site of its former mine at Waverley, the deal provides further evidence of UK Coal's rejuvenation as it leverages its massive property portfolio and renegotiates a series of onerous coal contracts.

Jon Lloyd, the chief executive, has been ridding the company of fixed-price contracts struck when the coal price was much lower. Over the past 18 months, the coal price has nearly doubled amid a commodities boom.

Prior to the Thoresby deal, UK Coal signed a separate two-year supply deal with EDF as well as an agreement to provide 6 million tonnes to E.On.

Mr Lloyd said he anticipates renegotiating terms with the company's third major customer, Drax, in the second quarter of next year.

He said the intention is to create a portfolio of different contracts some fixed at today's higher price, some floating to secure a steady income stream while taking advantage of possible further coal price appreciation.

The Thoresby deal also secures at least 500 jobs for the next several years. "I just left a meeting with a group of miners who are over the moon about what this means for them," said Mr Lloyd.

The company's share price jumped as analysts at Seymour Pierce reiterated their "buy" recommendations on the stock. Its shares ended the day up 4.9 per cent at 416.5p.