By Simon Walker
In December, the UK’s largest coal producer finally completed an eight-month restructuring exercise that has involved splitting its mining and property assets into separate entities. Faced with continuing operating losses, $220 million in debt and a $680 million deficit in its pension funds, UK Coal risked breaching covenants had it not done so, with its mining operations liable to run out of cash early in 2013.

Under the new structure, UK Coal Mine Holdings becomes a wholly-owned subsidiary of a new parent company, Coalfield Resources plc, with the property portfolio it acquired in the 1990s during the privatization of former state-owned British Coal being placed in Harworth Estates Property Group. Coalfield Resources retains a 90% economic interest in the mining division, although voting control has been passed to a newly established employee benefit trust. The company’s pension funds now have a 75.1% interest in Harworth Estates in return for a $50 million cash injection to the property business, with all surplus cash flow from the mines to be used to fund the pension deficit for the foreseeable future.

During 2011, UK Coal produced 7.5 million mt of mainly power-station fuel, of which 5.7 million mt came from its three remaining underground mines. Although the company reported net profits of $87 million on revenues of $770 million for the year, its long-term performance has been weak since the late 1990s. It reported a $34 million loss for the first half of 2012, and warned that its deep mine with the longest potential resource life, Daw Mill, will close in 2014 (or before) unless its performance improves and costs are cut.

If nothing else, the restructuring buys Coalfield Resources time. However, the company is saddled with high fixed costs at its underground mines, problems with winning permits for new surface operations, and a coal market in which imports compete strongly for generators’ business. The question remains, of course, whether it will be able to provide a ‘soft landing’ for its remaining 2,500 workforce in the longer term as reserves run out, or whether imports—including increasing tonnages from U.S. suppliers faced with their own shale-gas competition issues—will undermine the last pillar of Britain’s coal industry.