Hargreaves Services confirmed the closure of its historic Monckton coke plant yesterday and warned that the coal market had “significantly worsened” in recent months.
The firm said its target for its opencast Scottish mining operations, which include the St Ninian’s site near Kelty and Muir Dean by Crossgates, is now to achieve a break-even position for the coming financial year to May 2016.
Durham-based Hargreaves has been building its Scottish business since moving to pick off the assets of administration-hit Scottish Coal and ATH Resources last year. It now has more than 500 employees north of the border.
However, the firm announced a review of its operations in September, and yesterday confirmed the Monckton Coke & Chemical Company, a 130-year-old subsidiary operation in South Yorkshire, was to be closed.
The company said it regretted the decision but ultimately expected the move to be cash positive for the business, with the closure releasing around £22 million of working capital mainly tied up in coke stocks over the period through to May 2016.
The firm said the approximate cash impact of the Monckton closure, which affects 130 jobs, in the current year was a positive inflow of £8m.
“The decision on Monckton represents a major element of the group’s simplification plan, which continues to progress well, and the board remains confident that its implementation will deliver strong cash generation and a more simplified and streamlined group,” it said.
Overall, the firm said trading had been in line with management expectations in the six months to November 30.
Its surface mining operations had performed well, with strong production rates achieved across its portfolio of operating sites.
However, it said uncertainty surrounding Government policy on energy, coal generation and carbon taxes continued to weigh on visibility in its energy and commodities division, and sales of thermal coal had been slow in the period.
Looking further ahead, the company said it had decided to stray from its long-term strategy of hedging against commodity price volatility a practice that has produced savings of up to £9m in the current financial year in the hope of taking advantage of any future upturn in the price of coal, which has fallen by a further £4 per tonne over the past quarter.
“At these exceptionally low price levels, the group has elected to depart from its long-standing strategy and has not hedged or contracted to supply significant fixed tonnages for the next financial year,” Hargreaves told investors.
“Consequently, the group’s target will be to maintain the overall Scottish mining operation at a break-even level in the year to May 31, 2016.
“The group will monitor coal price and selectively target production, particularly focusing on those reserves that have a low cost of production and yield higher quantities of speciality coals.
“Furthermore, before committing to operate specific sites, the group will secure contract or hedge cover for each specific project. This will maximise the opportunity for the group to benefit from any increases in coal prices, whilst managing further profit exposure.
“In addition to our Scottish activities, at current coal price levels, the lower coal prices are expected to reduce the group’s share of profit from the Tower joint venture by around £2m in the financial year to May 31, 2016.
“The group remains confident that the mining assets in Scotland and Wales are important and potentially very valuable long-term assets.
“The team continues to work hard and, given the ongoing challenges around coal price, has intensified its efforts to drive value and cash from the renewable projects and property assets that were acquired with the ATH and Scottish Coal acquisitions.”
Shares in Hargreaves fell back 13.12% or 90.50p to 599.50p after yesterday’s update.