Hargreaves Services has warned coal prices will affect its business strategy, but says it remains committed to its coal resources in Scotland.
The company said falling coal prices would mean it only targeted a break even result from its Scottish mining operations during the next financial year.
According to The Herald Scotland, the business, which acquired parts of Scottish Coal and ATH Resources when the firms went into administration last year, admitted beneficial price hedging agreements were coming to an end in the current financial year to May 2015 and it had looked at various ways to mitigate the impact of this.
Forward coal prices for 2016 have fallen by £4/t since September. This has led Hargreaves to abandon its usual strategy of contracting to supply significant fixed tonnages for the next financial year.
It said: "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."
Finance Director, Iain Cockburn, said the company remained committed to coal mining in Scotland and would target resources on the most cost effective sites if prices continued to fluctuate.
In Scotland Hargreaves employs around 500 people at locations including Broken Cross in Lanarkshire, Duncanziemere in Ayrshire, Glenmuckloch in Dumfries and Galloway and Muir Dean in Fife.
Hargreaves said: "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 spite of the short-term challenges, Hargreaves stated its commitment to Scotland, suggesting the sites it owns here are "important and potentially very valuable long term assets".
Hargreaves is, in turn, looking to exploit some of the other assets it bought as part of the ATH and Scottish Coal deals. It said: "The team continue 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."
Hargreaves also confirmed the closure of its coke plant in Monckton, near Barnsley in South Yorkshire, with the likely loss of 120 jobs.
A consultation on the future of the plant was announced towards the end of October.
Hargreaves said the "unprecedented turmoil" in European coke markets had yet to settle down. It had been engaged in discussions with key export customers but there had been no indication of an upturn in demand.
For the financial year to May 2015, Monckton is expected to report a break even result, compared to a £2 million operating profit which had been forecast.
Closure costs are likely to be around £3 million with a further £1.8 million to cover remediation work.
However, a freeing up of working capital, mainly relating to coke stocks, is likely to give a cash inflow of £8 million in the current financial year.
The group's simplification programme continues apace, as it reduces production in order to trim costs.
In September, Hargreaves announced the sale of its Imperial Tankers subsidiary to Suttons Transport Group for £26.9 million. It paid £6.3 million for Imperial when it bought the firm in 2007.
Trading in the first six months of the current financial year was said to be in line with expectations.
Hargreaves said: "Our surface mining operations are performing well, with strong production rates being achieved across [the] portfolio of operating sites."
The company, which has its headquarters in Durham, also has mining operations near Morpeth, Northumberland and close to Hirwaun, South Glamorgan.
Edited from various sources by Sam Dodson
Read the article online at: https://www.worldcoal.com/coal/16122014/hargreaves-services-committed-to-scottish-coal-1685/