US Edition UK Coal
91p -4¼p
Questor says Hold
Britain's largest coal miner gave a sombre update yesterday with the news of another death at one of its mines.
The fatality at its Kellingley mine has halted production for a week. UK Coal said the mine could be closed for another fortnight as health and safety officials determine the cause of the tragic accident.
As such, the miner scaled back expectations for the output of its deep mines for the year, to around 6.2m tonnes, at the lower end of its earlier estimate of 6.4m-6.6m tonnes. It is thought it will cost the company around £12m in pre-tax profits.
UK Coal was also updating the market on its performance in the third quarter. Long-term investors will have been disappointed but probably not surprised.
This is a company that has promised much and failed to deliver, at least over the past few years. Yesterday was a similar story.
Third-quarter revenue dropped 20pc as the average price of coal toppled. Coal is mainly used in the generation of electricity so prices have fallen as the recession dampened demand for electricity.
UK Coal also has more than 40,000 acres of land, where it used to have working mines. The value of this land is thought to have fallen by around £40m as a result of the downturn, which will be reflected in the full-year results as a non-cash charge.
At the half-year there was a question mark over UK Coal's ability to continue operating as a going concern.
That, at least, has been resolved after the company this month raised £100m with a share issue, reducing its debt to £84m. The debt has also been restructured, pushing out the date on which it has to be repaid.
As ever with UK Coal, the good news is just around the corner. Investors that have been disappointed time and again might be tempted to give up on the stock now. Questor would suggest they hold on for that little bit longer.
UK Coal is stuck in a series of long-term contracts with electricity generators at fixed prices signed at the bottom of the market. These legacy contracts are due to come to an end in 2011 and in May the company successfully negotiated a series of much more lucrative agreements.
UK Coal is due to close its Welbeck mine early next year. But the company should make up for this by moving on to more productive seams in its other deep mines at Kellingley and Thorseby.
It has recently received planning permission for a surface mine near Telford, which should start operations next year and other planning applications are in the offing.
The property portfolio also holds long-term value. Much of the land is agricultural, which is expected to double in value in the next five years.
Some 4,000 acres are set to be developed, making UK Coal one of the largest brownfield property developers in the country. While the property market has taken a beating, the land value should increase once UK Coal gains planning permission.
The company remains confident that development of the land – which will not start until the end of next year at the earliest – should also coincide with an upturn in the property cycle.
Investors are likely well and truly fed up with the stock, but should continue to hold on if they have lasted this long.
Centamin Egypt
129½p -2½p
Questor says Hold
Centamin shares have rocketed up by 13pc since last Wednesday (even after falling back slightly yesterday).
The jump prompted the gold producer to say that it is not aware of any undisclosed information that might explain the biggest gain in its shares for five months.
Centamin is graduating from Aim up to the main list on November 5, which has likely attracted some new investors.
It will also shift from being a developer to a full-blown gold producer in November.
The stock is championed by hedge fund Paulson & Co, which made a packet shorting sub-prime and is therefore closely followed by other investors.
Then there is the gold price, which is still comfortably above the $1,000 mark, at the lofty price of $1047 an ounce.
A bid is very likely. Centamin controls one of the largest gold resources in Africa not held by a major miner. The Sukari mine is one of the largest gold projects to be discovered in the past 15 years, so all of the major gold mining groups will be giving it the once over.
Merrill Lynch is thought to have been showing fund managers around the site last week, further fuelling bid speculation.
Merrill is not the advisor; Centamin is still under the stewardship of its Aim Nomad Ambrian. But the investment bank would probably dearly like to take on that role when Centamin outgrows its current advisor.
Yesterday's rumour was that Canada's Eldorado is stalking the company.
AngloGold Ashanti, which is listed in London, New York and Johannesburg among others, is perhaps a more likely bet, as it is much larger and already has significant projects in Africa.
Any price is likely to be north of 150p a share, valuing the company at more than £1.5bn. Management are thought to be willing to sell but not at current levels.
Centamin is one of Questor's picks of the year, chosen when it was languishing at just 42½p. It has since soared by more than 300pc. Hold on for further gains.