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UK Daw Mill coal mine operator warns on fire impact

Source: Thomson Reuters Foundation - Mon, 25 Feb 2013 15:23 GMT
Author: Reuters
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* CEO says Daw Mill unlikely to re-open

* Mine was already under threat of closure

* UK Coal to meet energy ministry this week

By Brenton Cordeiro and John McGarrity

LONDON, Feb 25 (Reuters) - A major fire at its Daw Mill Colliery could threaten the viability of operator UK Coal, its chief executive warned on Monday, hitting shares in listed shareholder Coalfield Resources.

The fire on Friday forced UK Coal to evacuate more than 100 underground workers from Daw Mill, one of three deep coal mines it operates.

Shares in Coalfield Resources, which shares ownership of UK Coal with the UK Coal Employee Benefit Trust, were down more than 11 percent at 5.55 pounds as of 1415 GMT.

UK Coal said on Monday it was unlikely to re-open the mine, a site which had already been facing an uncertain future.

"This fire is on a scale not seen for decades," Chief Executive Kevin McCullough said.

"There's a very, very slim chance that this mine will re-open. We don't want to give miners at the mine false hope. Similar fires in Britain's mines have led to permanent closures."

He said the fire could pose a threat to UK Coal as a company.

"Our other mines are economically viable but the company as a whole won't be viable if the cost burden from a fire at Daw Mill has to be shouldered by the company alone," he said.

UK Coal will meet with Britain's energy ministry this week to discuss the future of the company's operations, McCullough said.

Its mines employ almost half of Britain's 6,000 coalminers and are among the remnants of the country's once-mighty coal industry which was privatised in 1994.

Daw Mill has a capacity of 1.6 million tonnes a year but was producing below that.

"Daw Mill was UK Coal's mainstay asset, but also its most troublesome asset, both operationally and in terms of labour relations. The fire may, unfortunately, be the death knell for it, at least in its current structure," Investec Securities said in a note.

DEBT

Dogged by debt and losses, UK Coal has been vigorously cutting costs at Daw Mill and had already reduced headcount there.

The company avoided a debt default and closure of its operations after completing a major debt restructuring with shareholders in December.

Despite a surge in domestic coal use, British coal miners have been hit hard by slumping international coal prices and high diesel costs.

Most deep mines closed in Britain after a 1984 miners strike, shrinking what had been an industry employing several hundred thousand workers to a headcount of fewer than 6,000 workers by 2011.

UK Coal said that the main utility affected by the fire was German utility E.ON, whose 2,000 MW Ratcliffe plant burns coal from Daw Mill.

"Our supply chain is very varied and operations at Ratcliffe are continuing to run as normal and in line with market conditions," said a spokesman for E.ON.

An analyst at a utility who requested anonymity said: "It's fair to say that E.ON will need to increase imports, but it's difficult to say by how much."

Physical European coal prices gained around 1 percent on Monday, buoyed by the fire and attacks on supplies at a major mine in Colombia.

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