Power station plans warm UK Coal

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The UK’s largest coal producer has welcomed the government’s plans to support the development of new coal-fired power stations that use “clean coal” technology.

Jon Lloyd, chief executive of UK Coal, said that the government’s decision “was extremely supportive of coal as an integral part of the UK’s future energy mix”.

“It is no longer just industry saying that. It is a mainstream view,” said Mr Lloyd.

The government last week said it would back up to four pilot projects to test new “clean coal” power stations that capture and store carbon dioxide emissions.

The government hopes that the UK can become a pioneer in the “clean coal” sector, arguing that carbon abatement technologies could sustain 50,000 jobs by 2030.

However, analysts were sceptical that the government plans would lead to any direct benefits for UK Coal. “The new power stations will probably use imported coal,” said Charles Kernot, an analyst at Evolution Securities. “But the policies will help to underwrite coal in the general mentality of the UK.”

The announcements helped provide a flattering background to UK Coal’s patchy full-year 2008 results.

The company recorded a loss of 10p per share against earnings of 59.9p in 2007, but its shares rose 8¾p, or 8.2 per cent, to 115p as investors took solace in improved contract terms and a resilient property portfolio.

UK Coal lost £15.6m ($22.7m) before tax, compared with a profit of £69m a year earlier, when the company benefited from a £66.8m non-cash increase in the value of its property portfolio.

In 2008 the property portfolio delivered a valuation gain of only £23,000 because of the difficult market conditions. Group revenue rose from £328.5m to £392.5m.

Performance at its coal operations was mixed. The average price of coal rose 18.5 per cent and the surface mines remained profitable but the deep mines suffered “difficult geology”, resulting in production delays.

“We did stumble there,” said Mr Lloyd, noting that the company was forced to draw heavily on its banking facilities, resulting in an increase in net debt from £104.3m to £137.1m.

Mr Lloyd said that new contracts with electricity customers, involving certain prepayment for coal, would produce cash flow benefits of £85m in 2009 helping to address balance sheet concerns.

He said the company had a positive outlook for both its property portfolio and its coal operations.

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