Latest Results

Interim Results

ATH Resources Plc (AIM: ATH), one of the UK’s largest coal producers, reports its unaudited Interim Results for the six months ended 1st April 2012.

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Highlights

• Revenue of £44.6 million (2011: £33.9 million), on sales of 796,000 tonnes (2011: 706,000 tonnes)
• Operating loss before exceptional items of £3.9 million, after including a provision of £1.1million in respect of the Government’s Carbon Reduction Scheme (2011: profit £1.7 million)
• Exceptional write off of work in progress of £2.0 million in respect of increased workings at Muir Dean
• Average selling price increased to £56 per tonne (2011: £48 per tonne)
• Proved and probable reserves of 7 million tonnes (2011: 7.9 million tonnes)
• Applications for two new sites totalling 1.7 million tonnes submitted into planning
• Net borrowings, (including hire purchase of £11.6 million) at £30.6 million down from £31.5 million as at 2 October 2011
• International coal prices down 28% since the beginning of the financial year
• Production costs increased due to increased mining ratios and higher gas oil costs

Commenting on the interim results, Alistair Black, Chief Executive of ATH said:
“Against the background of a difficult market with a fall in the international price of coal of 28% since the beginning of the financial year, the Group’s average selling price increased by 16% over the same period last year. This was achieved through the successful renegotiation of its legacy contracts and alterations to the mining plan to focus on the extraction of higher quality coal.

“However, increased gas oil costs, delays to certain extensions and higher mining ratios increased the overall cost of mining and reduced profit margins. Following the rapid fall in international coal prices, and with commodity markets forecasting that future prices will not stage any meaningful recovery in the medium term, the Group has reviewed all of its existing and future operations with a view to concentrating investment on those sites which will continue to generate cash even in this depressed market. Consequently annual levels of production will be reduced for as long as low coal prices persist. The Group’s revised plan affords for the continued investment in the development pipeline in order to be able to take advantage of any future market recovery as and when it occurs.”

Chairman's Statement

Introduction
Comparatively inexpensive supplies of natural gas in North America and a very mild winter have led to an over-supply of coal into global markets as US Generators either switched away from coal to gas or reduced output. Consequently, international coal prices fell by 28% in the first half of the financial year. Although there are now signs of some rebalancing of supply and demand, particularly in the North American coal fields, the continued worldwide economic slowdown has meant that coal prices are likely to remain uncertain for the foreseeable future. Gas oil costs remained high for most of the period but have reduced in recent weeks. However, in accordance with its normal policy, the Group has hedged the cost of its gas oil, and whilst this has reduced the impact on the Group’s costs in the first half of the financial year, it will not benefit from any cost reductions until the current hedging arrangements unwind later this year.

The challenging economic environment has prompted the Board to review all of its operations to ensure that during these difficult times it is strictly managing its cost base and that cash generation is maximised. It should be noted that whilst profitability will be impacted significantly, the Group should still be able to generate cash in the absence of any further reductions in coal prices.

Sales
With Netherton now in full production sales volumes increased to 796,000 tonnes (2011: 706,000 tonnes). Additionally, the renegotiation of legacy contracts together with improved coal qualities following changes to the mining plan, average selling prices increased to £56 a tonne (an increase of 16%). This was achieved in spite of lower demand for the Group’s high priced domestic products following a very mild winter.

Production
Netherton and Duncanziemere are in full production and are producing coal in line with management expectations.

The incidence of old workings at the Group’s Muir Dean site have again increased, further reducing coal production and increasing mining costs. The reduced levels of production, together with previously announced delays to planned extensions are expected to result in a fall in sales volumes of around 250,000 tonnes for the full year compared to that planned at the beginning of the year of which approximately 90,000 tonnes impacted in the first half of the year.  The reduction in reserves at Muir Dean has resulted in a further write off of site development costs and work in progress provisions with a consequent impact on Group performance.

The Group’s production at its Glenmuckloch site is now in its final phase and a final decision on whether or not the Eastern Extension will be worked has been deferred until the end of the calendar year. The Group is working with the Local Authorities and other stakeholders on initiatives to minimise the number of redundancies as a result of this delay. In the event the extension is not mined, production will be reduced by 500,000 tonnes over the next two years.

Overall the Group expects production to be around 1.6 million tonnes for the current year with both Netherton and Duncanziemere sites producing coal in line with expectations.

Production costs in the current year reflect a full six months production at Netherton compared to 2011 when site development costs were largely capitalised to be written off in line with coal production. This, together with the impact of mining higher ratio sites, and higher costs of Gas oil has resulted in mining costs increasing to £54 per tonne (2011: £39 per tonne). The cash cost of operations excluding depreciation, adjustments for work in progress and capitalisation of site development costs remained unchanged at £44 per tonne.

Site Development
The Group continues to explore  opportunities to develop new sites in order to secure future production, accordingly two new sites, which in total should produce around 1.7 million tonnes of coal have now entered the planning process. In the light of the current international coal price the Group is re-assessing all sites in its development pipeline and may decide to slow down its mining plans until economic conditions improve.

Proved and probable reserves currently stand at around 7 million tonnes, of which around 4 million tonnes is fully permitted.

Carbon Reduction Commitment (“CRC Scheme”)
The Group has submitted an application for judicial review of the CRC Scheme. If unsuccessful, under phase 1 the CRC Scheme will result in a cash payment of £1.1 million in July 2012 with the potential of two further annual payments thereafter. The Group has taken the decision to make a provision in respect of the first of these payments in the case it is found that the Group is ultimately liable.

Banking Facilities
As previously announced, the Group’s existing facilities with its lenders are scheduled to expire in May 2013 and the Board is in detailed and ongoing discussions with its banks regarding the facilities required going forward. The discussions are continuing against a background where the Group expects to continue to reduce debt even in these difficult trading conditions.

Outlook
The proportion of Group sales exposed to movement in the international price of coal will increase significantly as existing contracts are fulfilled towards the end of this calendar year. Consequently, in the absence of a recovery in the international price of coal, trading conditions are expected to remain challenging.  Whilst the Group has already implemented a number of actions to mitigate the impact of the factors outlined above, further measures will be implemented to minimise operating costs and capital expenditure. The Group’s strategy during these challenging conditions is to maximise cash generation from current operations whilst continuing to invest in its development pipeline thereby placing the business in the best possible position to benefit from any recovery in coal prices.

David Port
Non-Executive Chairman
28 June 2012

Condensed consolidated income statement (unaudited)
for the six months ended 1 April 2012

There are no recognised gains and losses other than as stated in the income statement.

Condensed consolidated balance sheet (unaudited)
As at 1 April 2011

Condensed consolidated statement of changes in equity
for the six months ended 1 April 2012

Condensed consolidated cash flow statement (unaudited)
for the six months ended 1 April 2012

Notes

Page last up-dated: 28 June 2012