UK Coal PLC Half Yearly Report (7328J)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Harworth Group Plc	LSE:HWG	London	Ordinary Share	GB00BYZJ7G42	ORD 10P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	-2.50	-1.80%	136.50	135.50	138.50	136.50	136.50	136.50	53,277	16:35:27

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Offices-holdng Companies,nec	72.43M	37.96M	0.1172	11.65	441.9M

Harworth (LSE:HWG)
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TIDMUKC

RNS Number : 7328J

UK Coal PLC

10 August 2012

UK COAL PLC ("UK COAL")

Unaudited Financial Results for the Half Year Ended 30 June 2012

Key Points

   --     Agreement reached in principle on the restructuring with key stakeholders

-- Total Group revenue fell 23% to GBP198.3m (H1 2011: GBP256.1m) as a result of significantly lower sales volumes

-- Poor performance at Daw Mill and Thoresby reduced total production to 3.3m tonnes (H1 2011: 4.1m tonnes)

   --     Positive progress made with the safety programme 
   --     Average sales price per Gigajoule GBP2.43 (H1 2011: GBP2.36/GJ)

-- Operating loss before non-trading exceptional items* of GBP6.0m (H1 2011: Profit of GBP35.2m). Reduced sales volumes offset by slightly higher averaged realised sales prices

   --     Loss after tax and exceptional items* of GBP20.6m (H1 2011: profit of GBP22.2m) 
   --     Property sales of GBP16.7m in the period (H1 2011: GBP53.8m) 
   --    Group net bank debt of GBP66.1m at period end (December 2011: GBP54.7m)

-- Total net debt, including generator loan/prepayments reduced GBP0.5m to GBP138.3m (December 2011: GBP138.8m)

* H1 2012: GBP5.7m exceptional costs relating to the refinancing and the restructuring of the business

H1 2011: a net non-trading exceptional credit in the period of GBP0.1m arising from a charge related to the refinancing more than offset by a pension scheme curtailment gain

Commenting on the results, Jonson Cox, Chairman, said:

"Our first half year results for 2012 show a disappointing performance, caused by the poor Daw Mill performance in Q1 and the weakening coal price seen in Q2. These factors were mitigated by an improved consistency of production in Q2. We have continued to progress with the recovery of Daw Mill's 32s face, and are in the process of re-commissioning the face.

"The production problems and the risks of operating Daw Mill in its current structure, when combined with the pension deficit and the level of bank and generator debt, led the Board to conclude that a restructuring of the business was necessary to secure a stable platform for UK Coal and its stakeholders. We are pleased to report today that we have reached an agreement in principle with key economic stakeholders on the restructuring."

Further Information

Analysts Presentation

A presentation to analysts is being held at Cardew Group, 12 Suffolk Street, London, SW1Y 4HG at 9.00am.

Press Call

A conference call for press is being held at 12.00pm:

Dial in Number: 020 3140 0694

Pin: 477621#

Enquiries

Analysts and Investors:

Jonson Cox,

   Chairman, UK Coal PLC                                  Tel: 01302 755002

David Brocksom,

   Group Finance Director, UK Coal PLC      Tel: 01302 755002

Media:

   Anthony Cardew / Emma Crawshaw       Tel: 020 7930 0777

Cardew Group

   Andrew Mackintosh                                       Tel: 020 7930 0777

Director of Communications, UK Coal

For more information, please go to: www.ukcoal.com

Notes to Editors

UK COAL is a mining, property and power company employing c2,500 people with its headquarters at Harworth Park, Harworth, near Doncaster, South Yorkshire.

Britain's biggest producer of coal, UK Coal operates three deep mines in the Midlands and Yorkshire, and surface mines in the North East, the North West and the Midlands. Over 90% of the total annual output is sold to generate around 5% of Britain's electricity requirements.

Harworth Estates, the property division of UK Coal, is one of the largest landowners in the UK. With access to over 30,000 acres of land, Harworth Estates create and develop new opportunities across all sectors of the UK property market.

Harworth Estates is committed to environmental best practice, creating new sustainable communities, thousands of new homes and new business space across Yorkshire, the Midlands and the North.

For more information, please go to: www.ukcoal.com

Cautionary Statement:

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and UK Coal's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

UK Coal undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

CHAIRMAN'S STATEMENT

INTRODUCTION

Performance in 2012 has brought major challenges to UK Coal. Nonetheless, positive progress was made with our safety programme and improvements have continued with our Lost Time Accidents Rates dropping by 40% in the first half of 2012 compared to 2011. However, continued improvement requires daily vigilance if UK Coal is to reach the position to which we aspire.

First half year production was 3.3 million tonnes (H1 2011: 4.1 million tonnes, FY 2011: 7.5 million tonnes). Our three deep mines produced 2.4 million tonnes (H1 2011: 3.1 million tonnes, FY 2011: 5.7 million tonnes). Kellingley achieved a higher level of output than in the first half of 2011, but both Thoresby and Daw Mill saw a drop in production - Thoresby due to a split seam in the final stages of mining DS2s which reduced coal yield and Daw Mill due to the slow ramp up and performance of 303s.

Surface mining had a good first half from the four producing sites when compared to the six sites in operation in the same period last year. First half production was 0.9 million tonnes (H1 2011: 1.0 million tonnes, FY 2011: 1.8 million tonnes) and production has begun at two further sites, with an additional site expected to begin production in the last quarter of 2012.

International coal prices have seen a significant fall from the highs of 2011 when they averaged GBP3.01/GJ for the year compared with GBP2.40/GJ for the first 6 months of 2012, having dropped as low as GBP2.13/GJ in May. This follows the rise in shale gas production in North America, and the consequential falls in US gas and coal prices, which has resulted in US-supplied coal further depressing the market in NW Europe, that was already affected by economic worries. On a positive note, forward coal prices show some signs of strengthening over the remainder of 2012 and through 2013.

We have continued to make further steady progress in realising value from our property portfolio, with sales of GBP16.7m in the period.

The production problems and the risks of operating Daw Mill in its current structure, when combined with the pension deficit and the level of bank and generator debt, led the Board to conclude that a restructuring of the business was necessary to secure a stable platform for UK Coal and its stakeholders. We are pleased to report today that we have reached an agreement in principle with key economic stakeholders on the restructuring.

RESULTS

Group revenues fell 23% in the first half of 2012 to GBP198.3m (H1 2011: GBP256.1m, FY 2011: GBP488.2m) following significantly lower sales volumes at slightly higher average realised sales prices (H1 2012 GBP2.43/GJ: H1 2011 GBP2.36/GJ, FY 2011: GBP2.48/GJ). This led to an operating loss of GBP6.0m before non-trading exceptional items in the first half of 2012, some GBP41.2m worse than the operating profit before non-trading exceptional items of GBP35.2m booked in H1 2011.

Exceptional costs totalling GBP5.7m have been incurred in the period (H1 2011: GBP0.1m credit, FY 2011: GBP16.1m credit). These costs relate to refinancing and restructuring activities carried out in the first half of 2012. Professional fees of GBP3.5m have been classified as non-trading exceptional items and refinancing costs of GBP2.2m have been classified as exceptional finance costs.

We have continued our drive to realise value from our brownfield property portfolio and achieved disposals in the period with net book value of GBP16.3m. These sales generated a profit on disposal of GBP0.4m (H1 2011: GBP2.1m, FY 2011: GBP2.7m). The net proceeds of disposals received in the first half of 2012 of GBP11.4m (H1 2011: GBP36.0m, FY 2011: GBP64.3m), including GBP3.5m received in relation to property exchanges in 2011, have been used to reduce Group debt.

In addition to the property disposals achieved in the half, we have secured in June 2012 the conditional sale of our Harworth Power business for GBP20.3m. This sale is conditional upon shareholder approval following the issue of a circular to shareholders.

The Group made a loss before tax of GBP20.6m in the period (H1 2011: GBP22.1m profit, FY 2011: GBP58.0m profit), reflecting operating loss before exceptional items of GBP6.0m, net interest costs of GBP8.9m and exceptional costs relating to the refinancing and the restructuring of GBP5.7m.

The net debt owed to Generators and Banks fell by GBP0.5m to GBP138.3m from GBP138.8m at December 2011.

RESTRUCTURING

During the course of the year, the Board has concluded that UK Coal's operating structure and balance sheet are not appropriate for the level of operating risk in the business. In particular, the Company continues to owe its customers and its banks GBP138.3m and has a funding deficit to the Pension Funds of approximately GBP430m. The debt and the pension fund deficit combined rule out the possibility of Shareholders receiving any return from their equity in the Company until these issues are addressed.

We have made significant progress towards a restructuring of the business. It is a highly complex process that involves the goodwill and understanding of a range of stakeholders including the Pension Funds, the Pensions Regulator, our principal banking partner Lloyds Banking Group, Barclays, our customers, the Department for Energy and Climate Change and the Coal Authority.

A non-binding heads of terms agreement has been reached with the Pension Trustees, and an agreement in principle with the Generators, which would result in a combined c.GBP90m of support to UK Coal over the period to the end of 2015 once the proposed restructuring is implemented. Under the proposed plan the mining business would be left free of bank debt and would have an affordable pension deficit reduction scheme. Each mine will be restructured into separate legal entities to reduce the risk of any one mine's failure from bringing down all mines. This is expected to create a more stable platform to release the value in the mining business. As part of this arrangement, from 2014 the Pension Funds will receive GBP30m per annum plus any cash in the mining business above a minimum headroom requirement of GBP50m, after agreeing to defer any deficit contributions in 2012 and 2013.

As part of the proposed plan to address the deficit, it is intended that the Pension Trustees will also invest GBP30m in the property business to enable the release of the latent undeveloped value in the property portfolio. In exchange, the Pension Trustees will receive a direct stake of 75.1% in that business, with existing shareholders being entitled to the benefit of the remaining 24.9%. This stake would be held through a new holding company which would not guarantee the pension liability. In return for the stake, the first GBP5m of shareholders' dividend income would be paid to the Pension Funds. The terms of the proposed restructuring could mean that shareholders' principal continuing economic interest in the Group will be a minority stake in the long term development potential of its property assets. The Company made strenuous attempts to secure an option for shareholders to subscribe part of the new equity, but the primary condition of the Pension Funds was to have a controlling shareholding in a separated property business.

The Company has had constructive discussions in relation to the Heads and Terms with the Pension Regulator, who has not raised any major objections to the proposals. The observations which have been raised by the Regulator appear capable of resolution. The proposed restructuring has also been explored with our major stakeholders and the Board has concluded that it offers UK Coal a viable, and sustainable, future. It remains subject to agreement of legally binding documentation with stakeholders.

OUTLOOK

UK Coal's Board believes that a restructuring creates a sustainable platform, allowing us to continue to produce coal to supply power stations and get full value from the property portfolio for the Group. There is still much work to be done and there remain significant challenges and risks to completing the process. Without a restructuring, the Group will remain exposed to significant risk on its financial headroom and covenants. With the ever present challenge of operational difficulties, there is a significant risk to the continuation of the mining business, jobs, and the local economies around our mines in the absence of creating additional headroom.

Principal operational issues continue to be the level of production risk in the deep mines, at Daw Mill in particular, the price of coal and the reduction of operating costs at the mines.

Daw Mill remains on a course to close in early 2014, or before, unless it can achieve key targets. The mine is expected to endure another face gap in 2013, reflecting the results of past poor performance and the failure last year fully to mitigate a 2012 face gap. We have set out clearly the terms under which the Company would seek to extend the life of Daw Mill to realise its full potential. One of these conditions was the adoption of new shift patterns. We regret that a recent ballot of the workforce rejected the proposals of our new Mine Director at Daw Mill, rendering it unlikely that the mine will be able to continue to operate under the required lower risk operating model.

With coal retaining a significant role in the UK's energy mix, there is still an opportunity for indigenous coal rather than relying on imported coal. There remains a need for coal in the medium term in the UK.

I would like to thank the workforce and management at UK Coal for all their hard work this year. It has been an exceptionally difficult period as we faced the challenges of low production levels. However, with the improving prospects of a successful restructuring we aim to exploit safely the economic potential of this Company for all its stakeholders.

Jonson Cox

Chairman

10 August 2012

Operating review

SAFETY

Safety remains our core priority and we strive to create a zero accident environment by minimising any risk of accidents occurring.

Over the period, we continued with training and education of all employees to improve capabilities with particular focus on improved risk identification and assessment.

Further focus within the business has led to the creation of a Central Safety Committee, which is chaired by the Managing Director of Mining and externally assisted by Du Pont Sustainable Solutions. Focus on the historical 'lagging' indicators continues to track the improvements in accident rates on a monthly basis.

Increased attention has also been placed on 'leading' indicators which include simple, but effective, safety observations, mini risk assessments and the introduction of self-auditing safety reviews.

Results from this continuous effort have yielded a 28% improvement in Total Accidents Rates for the period 2012 in comparison to 2011 and a 40% reduction in Lost Time Accidents Rates for the same period.

Whilst these results show an improved performance, every employee understands that there is still a massive effort required before we can compare ourselves to 'best in class' which continues to be our main objective.

MINING

Coal market

International coal prices delivered into NW Europe have seen a dramatic fall from the highs of 2011 when they averaged GBP3.01/GJ for the year compared with GBP2.40/GJ for the first 6 months of 2012, having dropped as low as GBP2.13/GJ in May. This is in part a consequence of the rise in shale gas production in North America resulting in a reduction in coal burn for electricity generation in the US and the increased export of coal from the US and Columbia to NW Europe. Imports into the UK are 49% higher year on year.

Coal burn by electricity producers in the UK in the first half of 2012, still accounts for 43% of the energy mix.

Forward coal prices show some signs of strengthening over the remainder of 2012 and through 2013: on 6 August, those prices were circa GBP2.44/GJ, GBP2.57/GJ and GBP2.75/GJ for the fourth quarter of 2012 and for the full years of 2013 and 2014 respectively.

Coal sales

In the first half, an average realised sales price of GBP2.43/GJ was achieved compared to GBP2.36/GJ H1 2011 and GBP2.48/GJ FY 2011. This is despite the fall of market coal prices and is due to the reduction of disadvantageous legacy contracts and their replacement with new contracts on more market-based terms.

Deep Mines

 
 Colliery performance 
  summary: 
                             Production    Production    Production   Operating   Operating   Operating 
                                                                          cost*       cost*       cost* 
                             (m tonnes)    (m tonnes)    (m tonnes)      (GBPm)      (GBPm)      (GBPm) 
                                H1 2012       H1 2011       FY 2011     H1 2012     H1 2011     FY 2011 
-------------------------  ------------  ------------  ------------  ----------  ----------  ---------- 
 Deep mines 
 Daw Mill                           0.8           1.4           2.1        58.6        56.6       113.8 
 Kellingley                         1.1           1.0           2.3        45.8        47.3        89.0 
 Thoresby                           0.5           0.7           1.3        41.4        40.8        79.3 
 Total deep mines 
  production / costs 
  before stock movements            2.4           3.1           5.7       145.8       144.7       282.1 
-------------------------  ------------  ------------  ------------  ----------  ----------  ---------- 
 Stock movements                      -             -           0.4         1.1         7.4        14.4 
 
  Total deep mines                  2.4           3.1           6.1       146.9       152.1       296.5 
-------------------------  ------------  ------------  ------------  ----------  ----------  ----------

* Operating cost before non-trading exceptional items and depreciation costs, with central costs absorbed.

The deep mines performance in the first half of 2012 was disappointing, primarily due to production problems at Daw Mill.

Daw Mill

As previously reported, the slow ramp up of 303s coal panel, following the production difficulties on the previous panel, 32s, in late 2011 resulted in poor production in Q1 2012.

Daw Mill finally reached anticipated levels of production in March, and has continued to mine in line with expectations. The recovery of 32s, which has involved a very significant amount of engineering work, was ongoing in the period and we are now in the process of re-commissioning the face. There is more work required before the resumption of production at more normal output rates and to leave behind a heating that has been causing risk whilst the face has been standing. The intention is now to make this face the primary production unit until completion in late Q3 2012. The ability to mine the remaining coal on 32s face, and to salvage and transfer the equipment from 32s to 33s in a timely manner, will determine the length of a face gap next year already estimated at around 12 weeks between the completion of the current 303s face and the expected start date for 33s.

Deep mine costs are largely fixed relative to production levels. The increased costs at Daw Mill reflect the problems encountered in both the safe recovery of 32s face and the difficult ramp up of the 303s face.

Daw Mill remains in consultation around whether it will close after the conclusion of 33s face by 2014. As reported in the Chairman's Statement, this is only avoidable if a lower risk operating model can be agreed. The recent rejection of revised shift patterns by sections of the workforce makes this less likely to be agreed.

Kellingley

Kellingley continues to make good progress with production and developments and performance was in line with expectations. The next face change is due later this month as the current panel finishes. Despite mechanical issues with the 502s face chain that needed a week to resolve, Kellingley still managed to produce more coal in the first half of 2012 than in the same period in 2011. It is thanks to the great efforts made by the mine workforce and management that Kellingley was able to increase its production levels in the first six months of 2012, despite the setback of the 502s chain.

Although there is still a lot to do, the 503s face change is on track to be complete in late August and includes the installation of extended canopies which will allow for an even safer working environment.

Thoresby

Transfer of production at Thoresby to DS3s took place in the period and mining is progressing well. Production was affected during the final stages of coaling on the previous panel, DS2s, due to a known seam split which reduced the volume of saleable coal available for extraction.

At the same time developments are underway towards the next face required for Q1 2013 and remain a key focus of the mines activities.

In addition to the coal from Thoresby itself, the surface washing plant has also been preparing inferior coal and slurries from the surrounding area for sale.

Harworth

The mine remains under care and maintenance and preliminary discussions and investigations are underway around the viability of reopening the mine.

Technical visits have also taken place to European mines that have similar geological conditions and it is hoped that a decision will be made by the end of 2012.

Surface Mining

 
                                            H1 2012   H1 2011   FY 2011 
-----------------------------------------  --------  --------  -------- 
 Production (m tonnes)                          0.9       1.0       1.8 
 Operating costs* (GBPm)                       37.1      48.6      87.7 
 Operating costs per gigajoule* (GBP/GJ)       1.92      1.93      1.97 
-----------------------------------------  --------  --------  --------

* Operating cost before non-trading exceptional items and depreciation costs, with central costs absorbed.

Surface mining had a good first half with production from the four producing sites compared to six sites in operation during the same period last year. During the period production commenced at both Butterwell and Lodge House Extension whilst Minorca is on schedule to commence operation during the fourth quarter of 2012.

This is a good production performance in a period that, although it started with a dry mild winter, was followed by some extremely wet conditions.

The reduction in total operating costs reflects the lower number of sites being mined. Costs per gigajoule have been held despite an increase in the unit cost of fuel.

Planning

During the period a planning application was submitted for Shortwood Farm (Nottinghamshire), which has reserves of 1.3 million tonnes of coal. It is anticipated that three further applications will be submitted for new sites in the second half of the year.

Following the rejection of our appeal against the refusal to grant planning for our Bradley mine (0.5 million tonnes), a judicial review has been lodged and is expected to be heard by early 2013.

HARWORTH ESTATES

The first half of 2012 has seen a continuation of our disposals programme and some significant steps in creating value across the remaining portfolio. We sold properties with a net book value of GBP16.3m, realising GBP16.7m and giving a profit on disposals of GBP0.4m.

Despite having achieved these disposals, the total valuation of our property portfolio decreased by only GBP10.6m to GBP271.7m (December 2011: GBP282.3m), due to gains achieved in adding value through planning progress and maximising developable land. On a like for like basis (after allowing for sales, purchases, depreciation and development spend) our overall portfolio value has increased by 1.2%, as set out in the table below.

The major increases in valuation during the period relate to undeveloped land where better planning designation and maximisation of developable land area has given rise to valuation gains. The sales made during the period have underpinned our valuations and we remain encouraged by the interest being shown across this portfolio. Business Parks have reduced in value in what remains a difficult market for secondary industrial premises.

 
                                  June    December     December 2011 
                                   2012     2011       like-for-like* 
                                  GBPm      GBPm      GBPm        % 
 Agriculture**                    37.1      39.1      37.1      0.0% 
 Business Parks                   69.1      75.0      75.4     (8.4)% 
 Major Developments               77.9      84.3      73.7      5.7% 
 Natural Resources                34.9      31.0      30.7      13.6% 
 Strategic Land                   52.7      52.9      51.6      2.1% 
-------------------------------  ------  ---------  --------  -------- 
 Total properties at valuation    271.7    282.3      268.5     1.2% 
-------------------------------  ------  ---------  --------  --------

* The like for like December 2011 comparative and percentage change figures take into account adjustments for asset sales of GBP16.3m and purchases, development expenditures and depreciation of GBP2.5m.

** including surface mining land.

Consistent with June 2011, we have not employed external consultants to carry out the half yearly valuation. This valuation has been undertaken by suitably qualified employees with both appropriate professional qualifications (FRICS/MRICS) and a comprehensive knowledge of the properties and associated markets. The valuation basis and assumptions are consistent with those used in December 2011. In line with prior years, a full external RICS valuation will be carried out and reported in the year end accounts.

Major Developments

Work has begun on the first phase of 4,000 homes at Waverley, South Yorkshire, with some off-plan sales already secured and show homes are due to open in the autumn. Planning consent has been secured for a further 400 homes at North Gawber near Barnsley and a conditional land sale has been agreed for 120 homes at Harworth.

Planning has also been submitted for a training centre for the University of Sheffield at our commercial development at Waverley which has also seen the completion of two land sales contracts with Rolls-Royce totalling 34 acres at the Advanced Manufacturing Park. Rolls-Royce intends to build two factories; the first will be an Advanced Blade Casting Facility to manufacture blades for jet engines and the second will be associated with advanced nuclear manufacturing involved in future power generation projects. Construction work began on 9 July.

Progress with the commercial side of the Waverley site continues and our work with key stakeholders, such as Sheffield Local Enterprise Partnership, has resulted in around 100 acres of commercial land being included within the Sheffield Enterprise Zone that provides financial incentives for businesses. Harworth Estates has also submitted a bid to Government for Regional Growth Fund monies to help forward fund key infrastructure at Waverley and accelerate development.

At Prince of Wales, we are reviewing the up-front infrastructure costs with a view to achieving cost savings to facilitate the release of the first phase of development in 2013. At our Harworth site, Asda began work on a 22,000 sq ft food store in June.

Strategic Land

Our strategic land division has also achieved success in the first half of 2012 with 115 consented plots sold at Ball Hill, South Normanton to Taylor Wimpey and 148 plots at Goldthorpe, Barnsley to Gleeson Homes. There is a potential future land bank capable of accommodating circa 7,300 residential plots and 4.4m sq ft of employment space, of which 965 plots and 0.3m sq ft of employment space is already consented. Five planning applications were submitted during the first half of 2012 which, if successful, will contribute a further 1,259 consented plots plus further commercial development. Some 42 sites are now being actively promoted through the development plan system which have the potential to produce 5,076 plots and land to accommodate 4m sq ft of employment space, subject to planning approval.

Business Parks

Our business park portfolio operated in line with expectations in a challenging environment, with tenant retention levels remaining high and only a small number of business relocations.

North West Leicestershire District Council gave consent for the promotion and development of around 575,000sq ft of B2 industrial and B8 distribution accommodation and we anticipate planning consent on our 60 acre "Lounge" site at Ashby de la Zouch, Leicestershire, following a resolution to grant planning for a new rail linked national distribution facility (up to 875,000 sq ft).

Natural Resources

Our 'Waste to Energy' joint venture with Peel Environmental saw scoping reports issued for Kellingley and North Selby prior to planning applications being submitted. Leases have also been signed for both a power plant/mines gas scheme at Gedling and for a wind turbine on the Lynemouth Colliery site in Northumberland with Wind Energy Direct. This is the first stage of a mixed-use development on the site.

Following planning approval for coal recovery operations at the former colliery tip at Rossington, RecyCoal Ltd will produce an estimated 950,000 tonnes of recycled coal enabling the redevelopment of the site. Coal fines recovery also started at Bilsthorpe.

Sale of Harworth Power Generation

In June 2012, UK Coal announced that a conditional contract for the sale of Harworth Power (Generation) Limited had been entered into with Red Rose Infrastructure Limited, for a total cash consideration of GBP20.3m.

Red Rose Infrastructure Limited is managed by Capital Dynamics Clean Energy and Infrastructure, an independent asset management firm focusing in the clean energy, infrastructure and property sectors, which in January 2012 announced the acquisition of a 64MW portfolio of landfill gas assets in the UK.

The disposal forms part of the Company's plan to improve operational and financial performance and strengthen its balance sheet, in part through an asset realisation programme.

Due to the size of the disposal relative to the size of the Company, completion of the sale is conditional upon shareholder approval following the issue of a circular to shareholders.

Upon completion of the disposal, GBP20m is payable by the buyer in cash with the remaining GBP0.3m of the consideration being deferred, dependent upon the granting of future rights to gas extraction.

FINANCIAL REVIEW

Financial performance

A review of the performance of the Group and the individual businesses has been given in the Operating Review and further detailed disclosures are contained in the financial statements accompanying this report.

Group revenues have fallen 23% in the first half of 2012 to GBP198.3m (H1 2011: GBP256.1m, FY 2011: GBP488.2m) as a result of significantly lower sales volumes, which more than offset the slightly higher average realised sales prices achieved during the period. The reduction in sales volume arose mainly from production issues at Daw Mill in the first quarter of the year and at Thoresby, as described in the Operating Review.

The average realised sales price for the first half of GBP2.43/GJ (H1 2011: GBP2.36/GJ, FY 2011: GBP2.48/GJ) reflects the final benefits of having worked through the very old low priced legacy sales contracts, notwithstanding weakened coal market prices in Q2 2012.

The difficulties encountered in the deep mining operation gave rise to an operating loss before non-trading exceptional items of GBP6.0m in the first half of 2012, some GBP41.2m worse than the operating profit before non-trading exceptional items of GBP35.2m booked in H1 2011.

Property disposals in the period with net book value of GBP16.3m generated a profit on disposal of GBP0.4m (H1 2011: GBP2.1m, FY 2011: GBP2.7m). Net proceeds of GBP11.4m (H1 2011: GBP36.0m, FY 2011: GBP64.3m) received in the period were used to pay down Group debt.

There was a net non-trading exceptional charge in the period of GBP3.5m (H1 2011: GBP0.1m credit, FY 2011: GBP16.1m credit). This arose from a charge for professional fees in relation to the refinancing of the business in the period of GBP1.9m and professional fees incurred in relation to the restructuring of the business of GBP1.6m. Operating loss after non-trading exceptional items was GBP9.5m (H1 2011: GBP35.3m profit, FY 2011: GBP81.3m profit).

The Group made a loss before tax of GBP20.6m in the period (H1 2011: GBP22.1m profit, FY 2011: GBP58.0m profit).

Financing expenses

Total net finance costs in the first half of 2012 were GBP11.1m (H1 2011: GBP13.2m, FY 2011: GBP22.9m). Included in the first half were GBP2.2m of expenses related to one-off transaction fees (H1 2011: GBPnil, FY 2011 GBPnil).

Excluding exceptional finance costs, the net finance costs were GBP4.3m less than the corresponding period last year. The reduction in average borrowings over the period of GBP67m accounted for GBP3m of the decrease, with net gains on interest rate swaps accounting for a further GBP1m of the difference.

Group net debt

In the period, property with a net book value of GBP16.3m was sold with total net proceeds of GBP16.7m, of which GBP11.4m was received in the period. The bulk of the proceeds received, together with circa GBP3.5m received in the first half in relation to property exchanges in 2011, has been used to reduce Group debt which fell by GBP0.5m to GBP138.3m at the end of the period (December 2011: GBP138.8m).

As reported in the 2011 Annual Report, the Group renewed and extended certain of its banking facilities in April 2012.

A summary of the Group's principal bank facilities as at 30 June 2012 is given below:

 
                                                  Facility        Margin 
                                                      GBPm    over LIBOR      Maturity 
------------------------------------  --------  ----------  ------------  ------------ 
 Revolving Credit Facility (RCF)                 20.5(1,2)       300-400      December 
                                                                  bps(4)          2013 
 Additional Revolving Facility (ARF)                 up to     1,600 bps   December 
                                                   27.5(3)                  2013 
 Harworth Estate (Waverley Prince)                 25.3(1)       450 bps   December 
  Limited Facility                                                          2013 
 EOS Inc Facility                                  19.9(5)       300-400   December 
                                                                     bps    2013 
------------------------------------  --------  ----------  ------------  ------------ 
 Total                                               up to 
                                                     93.2m 
------------------------------------  --------  ----------  ------------  ------------

Notes

1 Facility reduces GBP for GBP as property sales are applied.

2 Reduces by GBP2m between October and November 2012

3 Facility reduces by GBP7.5m on 30 September 2012 and amortises to GBPnil over the period June 2013 to November 2013, with a short period of reduction to GBP12.5m at the end of 2012

4 The margin is dependent on the level of committed facility.

5 Facility reduces by GBP0.2m per quarter from September 2012.

In addition to the above facilities, the unsecured stand-by facility of GBP10m from Peel Holdings Finance Limited was extended to mature in November 2013. The facility amortises gradually over the period August 2013 to November 2013, and is available for drawing in the event that both the RCF and part of the ARF are drawn.

At June 2012, generator loans/prepayments totalled GBP72.2m (H1 2011: GBP97.5m, FY 2011: GBP84.1m) and (fully drawn) finance leases totalled GBP7.7m (H1 2011: GBP11.5m, FY 2011; GBP9.7m).

As part of the proposed restructuring outlined in the Chairman's statement, the above bank facilities will need to be renegotiated to provide revised covenant and other terms.

Taxation

There has been no corporation tax charge in the period (H1 2011: credit of GBP0.1m, FY 2011: charge of GBP2.7m).

The Group has gross tax losses estimated at GBP230m and gross timing differences of GBP230m, both as at December 2011, and both of which are available to offset against future profits of the mining business. In addition the deficit in respect of retirement benefits represents an additional future tax deductible expense.

The Group also has around GBP350m of capital losses which can be offset against profits arising on disposals of properties which were held by the Group in 2002. These capital losses are sufficient to offset the vast majority of the deferred tax liability which would otherwise be required in respect of the investment properties, leaving a small deferred tax liability of GBP1.2m which has been recognised in the financial statements.

The Group continues to review its deferred tax asset given the nature of its business, its historic performance and in the light of the proposed restructuring referred to in the Chairman's statement. Although the Group has made a loss in the first half of 2012, there have been no movements in deferred tax balances in the six months to June 2012 (H1 2011: GBPnil, FY 2011: GBP3.0m), and the Group has continued to recognise a deferred tax asset of GBP31.5m, being the amount expected to be recovered based on forecasts of future taxable profits, offset by a deferred tax liability of GBP1.2m at June 2012. At this point, further deferred tax assets have not been recognised owing to the uncertainty as to their recoverability. The position will again be reviewed at the year end.

Although there has been no movement in the deferred tax balances in the balance sheet, in the prior period there was a deferred tax credit in the income statement of GBP0.1m relating to the recycling from reserves of deferred tax on the fair value movements on interest rate swaps. All of these movements have now been recycled.

Retirement benefit obligations

The Group's defined benefit obligations comprise two funded industry wide schemes, the small Blenkinsopp scheme and an unfunded concessionary fuel scheme.

The industry wide schemes, which are closed to new entrants but are required to be open for future service, had a combined deficit under IFRS of GBP115.6m at June 2012 (December 2011: GBP101.0m). The deficit has increased under IFRS over the first half by GBP14.6m principally due to an actuarial loss of GBP17.0m due to changes in the assumptions used to calculate the scheme's liabilities, partially offset by an actuarial gain of GBP1.5m due to higher than expected investment returns, and the Group's contributions being GBP2.7m more than the cost of accruing benefits.

The overall post service obligations also include an unfunded liability in respect of the concessionary fuel scheme of GBP45.6m (December 2011: GBP43.7m). The increase primarily reflects changes in the assumptions used to calculate the scheme's liabilities.

Overall the Group's post retirement net liabilities have therefore increased by GBP16.5m over the period.

 
                                                        Concessionary 
                                              Pension            fuel    Total 
                                                 GBPm            GBPm     GBPm 
------------------------------------------  ---------  --------------  ------- 
 At January 2012                                101.0            43.7    144.7 
 Interest cost less expected return on 
  assets                                          1.8             1.1      2.9 
 Difference between actual return and 
  expected return on assets                     (1.5)               -    (1.5) 
 Actuarial loss in respect of liabilities        17.0             1.2     18.2 
 Contributions paid less current service 
  cost                                          (2.7)           (0.4)    (3.1) 
 
 At June 2012                                   115.6            45.6    161.2 
------------------------------------------  ---------  --------------  -------

As we noted in the Annual Report, the funding of the Defined Benefit Schemes is determined on assumptions that differ from those required to be used under IFRS. On the basis used to determine future funding, the deficit is significantly larger, being estimated at cGBP430m at December 2011.

Net Assets

Principally as a result of the loss after tax of GBP20.6m and the actuarial losses on the pension schemes and concessionary fuel scheme of GBP16.7m, the Group's net assets fell in the first half of the year from GBP146.0m at the start of the year to GBP109.3m at June 2012.

KEY RISKS AND UNCERTAINTIES

UK Coal PLC operates in an industry which carries inherent risk, and is subject to market and other external risks which cannot be fully controlled, mitigated or insured against. The Key Risks and Uncertainties identified by the directors which exist within the Group remain those disclosed on pages 25 to 26 in the Annual Report and Accounts 2011, and include risks from mining, financing, employment and property.

The key risks include the production risk inherent within any deep mining business, as deep mines operate with a cost base which is largely fixed relative to production levels. Consequently, unexpectedly large interruptions or prolonged reductions in production can have a material adverse impact on cash flow. Performance in 2009 and 2010, and in the first half of 2012, illustrated the difficulties inherent in deep mining operations and, in particular, the impact of unpredictable geological conditions and/or other operational issues on production volumes from our deep mines.

At present work on Daw Mill's 32s face is progressing. Difficult conditions remain to be overcome in order to restart mining and recover the equipment. The equipment is needed on Daw Mill's next face and its timely recovery is required to avoid extending a face gap in H1 2013.

In part, the Group finances its business through debt. The ability to raise funds on reasonable terms in the longer term depends on a number of factors, including general economic, political and capital market conditions and credit availability as well as business performance. There can be no assurance that financing in the longer term will be available or, if it is, that it will be available on acceptable terms for the Group. Following the extension to our main facilities in April 2012, there are now no significant facility maturities in the next 12 months. However, there is a longer term risk that the Group may become unable to refinance its bank debt or unable to obtain new or additional bank debt if this is required.

As is customary, our bank facilities are subject to covenants, in our case focussing primarily on loan to property value, adjusted earnings and adjusted tangible net worth. Although we are in compliance with these covenants, a fall in the valuations of our properties or a shortfall in production could have an impact on such covenants in the future which could in turn lead to increased charges and possibly a limitation of facilities available.

The Group also faces significant pension risk. Under the terms of the 1994 privatisation, those employees transferred to the employment of UK Coal Mining Ltd ("UKCML") became members of one of two Industry Wide Defined Benefit Pension Schemes. These schemes are sectionalised, meaning that UKCML has no unprovided liabilities in respect of the employees of other companies in the industry. UK Coal PLC and UKCML both have a responsibility in respect of these pension schemes under the Protected Persons Regulations which provides that it is not permitted to close off the schemes for future service, although in certain circumstances, later legislation may override this.

Under IAS 19, as noted in note 13 to this Interim Report, these schemes have a combined deficit of GBP115.6 million at June 2012. This deficit is, in accordance with IAS, calculated using a discount rate in line with the market rate for corporate bonds. Under the Technical Provisions, which are the basis for the triennial calculation of the pension liabilities for the Pensions Regulator and for agreement on funding rates with the Trustees, different rates, based on gilt yields, are employed. Depending on changes in these rates prevailing at, and investment performance to, the next valuation date (being 31 December 2012), a higher deficit than that as at December 2009 could lead to materially higher deficit contributions being needed in later years.

As described in detail in the Chairman's Statement, the Group is presently pursuing a proposed restructuring, but there is an added risk that the restructuring is unsuccessful. The proposed restructuring is progressing well, and the Board has received the agreement in principle of key stakeholders. In the absence of the proposed restructuring, or a similar transaction which offers the same amount of financial benefit, the Group faces the risk that it would not be able to continue as a going concern.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM FINANCIAL REPORT

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.10, namely:

- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the key risks and uncertainties for the remaining six months of the financial year; and

- material related parties transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of UK Coal PLC are listed in the UK Coal PLC Annual Report and Accounts 2011. Changes in Directors since December 2011 are shown in the Chairman's Statement. A list of current Directors is maintained on the UK Coal PLC website: www.ukcoal.com.

By order of the Board:

                                                                   Jonson Cox                                                           David Brocksom 
                                                                   Chairman                                                               Finance Director 
                                                                   10 August 2012                                                    10 August 2012

INDEPENDENT REVIEW REPORT TO UK COAL PLC

Introduction

We have been engaged by the Company to review the condensed consolidated interim financial information in the interim report for the six months ended 30 June 2012, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Shareholders' Equity, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Condensed Consolidated Interim Financial Statements.

Directors' Responsibilities

The interim report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated financial information included in this interim report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial information in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the interim report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of Matter - Going Concern

In arriving at our review conclusion, which is not modified, we have considered the adequacy of the disclosures made in the basis of preparation note within the condensed consolidated interim financial information concerning the Company's ability to continue as a going concern. The main areas of uncertainty relate to the successful implementation of the proposed restructuring, operational conditions at Daw Mill, production issues within the deep mine business, volatility of sales price and the covenants attached to the banking facilities. These matters indicate the existence of material uncertainties which may cast significant doubt about the Company's ability to continue as a going concern. The condensed consolidated interim financial information does not include the adjustments that would result if the Group or the parent Company were unable to continue as a going concern.

PricewaterhouseCoopers LLP

Chartered Accountants

Leeds

10 August 2012

Notes:

a) The maintenance and integrity of the UK Coal PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial report since it was initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

Consolidated income statement