UK coal to receive a boost as energy security fears are rife
According to the UK’s largest coal producer, increased fears over energy security has rallied demand for coal.
UK Coal, which supplies around 7 percent of the country’s energy for electricity generation, has signed and extended new long-term contracts with the big four in electricity generation.
The coal group has 4 deep mines and 7 surface mines employing 3,100 people and with reserves of 90 million, it has been producing 1.5 million tonnes of coal a year.
Following the announcement of the new contracts, shares in the group reached a two-month high closing up 8.8 percent at 115p.
For 2008, the company posted a pre-tax loss of £15.6 million, compared to £69 million profit the previous year, as the current economic climate has hampered the coal price.
The new contracts which have been signed amount to 36 million tonnes and have been signed at far higher prices due to the energy price fear, meaning that they are ahead of the current external marker as energy companies want the security of local coal and, in return, are willing to pay a premium for it.
The company expects the cash flow benefits from the contracts to be £85 million in 2009, with a further £15 million next year, as it plans to step up production, hoping to produce 8.3 million tonnes this year, compared to 7.9 million tonnes in 2008.
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Investors should realise that their is growing opposition across England to opencast / surface mine extraction because of its impact on local communities in Norhumberland, Durham, Leicestershire and Shropshire. This is because unlike Scotland and Wales, there is no insistence on there being a 500 metre buffer zone between areas of settlement and opencast mine sites in current English Planning Guidance. Groups in each of these areas are beginning to campaign for a change in policy to bring English guidance into line with Scottish and Welsh guidance. When the 500 metre buffer zone was introduced in Wales it was estimated to have sterilised two-thirds of known opencast coal reserves in Wales. England is a more densely populated country and UK Coal does has not made a profit on its deep mines in recent years. You have now been warned about the long term risk of investing in this Stock!