News: Problems at Maltby hits profits at Hargreaves

The share price of Hargreaves Services plc, the UK's leading supplier of solid fuels, has plummeted to its lowest point since 2010 following the announcement that unusual geological conditions at its Maltby mine in Rotherham is likely to reduce yearly profits in 2013 by between £12m and £16m.

Maltby occupies a site of 500 acres and employs over 500 staff and contractors. It is the last coking coal mine left in the UK and produces both high quality coking coal and power station coal. The colliery produces more than 1 million tonnes of coal per year.

In 2010 Hargreaves completed the change to a new face at Maltby but performance was a disappointment despite the investment. In 2011, new working practices and major equipment issues were resolved and a fifth shift was introduced employing 70 extra miners.

The current panel is expected to be completed in October 2012, after which, miners were expected to move onto a new panel where coal is expected to be approximately 25% thicker, which should significantly improve the yield. The group committed an additional £2m to facilitate production of an additional 50m of the new face.

Work has been underway to prepare the new panel for coal production but but at around 1,900 m, unusual geological conditions were encountered that resulted in increasing ingress of water, oil, gas and other hydrocarbons and work was suspended.

The group said in a trading update: "These conditions have not materially subsided and following careful consideration of the health & safety and operational risks, a decision has been taken to abandon further development on the tailgate and to pull the face back to a safe point.

"Maltby has never encountered such conditions before and the issue appears to be localised to this section of the mine."

The gap between mining the two panels is expected to be 12 and 16 weeks. This should not affect financial results in the year ending 31 May 2012 but the group estimate that the likely adverse impact on profit in the year ending 31 May 2013 will be between £12m and £16m.

Gerry Huitson, production division director at Hargreaves, said: "This is a very unusual situation and to our knowledge this has never happened before in Maltby's long 100 year history. No one on the mining team, including our independent expert geologist with 32 years experience at many different UK mines, has come across these conditions before.

"We will revise the mining plans to avoid this locality and it is highly unlikely that these conditions will be found again in any subsequent panels."

Gordon Banham, chief executive at Hargreaves, added "Whilst we are bitterly disappointed by this development, health and safety concerns far outweigh those of operational or financial performance. I am confident that this was the right decision and also that there was nothing that could have been done by the mining team to foresee or avoid this situation.

"With the support and help of the staff and unions, the face gap should not reflect on the longer term viability or profitability of the mine and we will work hard to mitigate the resulting impacts. The Group has the depth, breadth and financial strength to work through this and we do not see this event having any material adverse impact on the medium or long term prospects for the Group."

Hargreaves Services website

Images: Hargreaves Services