£16m hit looms as Maltby fault hits miner

The coal supplier and transporter has pulled back operations at the South Yorkshire coal mine following safety concerns after water, oil and gas seeped into a new section of the mine which it was trying to open up.

Hargreaves’ finance director Iain Cockburn said the group believes the problem will be a one-off.

“All the experts say this is a very unusual anomaly. We’ll get round it by shortening this latest panel,” he said.

He added that the next panel won’t be ready when the current T15 panel finishes in October.

“When you’re not producing any coal, you’re not getting any money.

“We’ll work on the same seam, but it will be in a different location,” he said.

The company estimated that the delays will reduce profits in the twelve months to May 2013 by between £12m and £16m.

Profits in the current year will not be affected and Hargreaves said the incident will not have a material adverse impact on the group’s medium or long term prospects.

But the market took fright and the group’s shares closed down 28 per cent, a fall of 299p to 726.4p.

Hargreaves said the development of the new T125 panel was progressing well, but at around 1,900m of advancement in the tailgate section, unusual geological conditions were encountered.

Conditions were contained to ensure safe working continued, but seepage levels increased significantly on May 17 and work was suspended.

These conditions have not materially subsided and Hargreaves said that following careful consideration of the health, safety and operational risks, a decision was taken to abandon further development on the tailgate and to pull the face back to a safe point.

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

It added that there could be a 12-to-16 week gap between completing production on the T15 panel and starting production on T125.

Gerry Huitson, production division director, 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, said: “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 imp- acts.”

He added that the group has the depth, breadth and financial strength to work through this and the event should not have any material adverse impact on its medium or long-term prospects.

Panmure Gordon stockbrokers cut their forecast for 2013 profits from £60m to £44.1m, before a recovery to £67m the following year. It has changed its hold recommendation to sell for the time being.

Analyst Paul Jones added: “This update reminds us of the geological risk associated with Hargreaves, despite the rapid development in the growth in profits from other divisions, which have reduced this risk markedly in recent years.

“While this kind of incident is rare at Maltby it does little to dispel medium-term concerns that issues out of its control may always affect the share price and profitability of the company.”

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