ATH losses set to widen as failed takeover bid and rising costs bite

ATH Resources yesterday warned investors that rising costs and a failed takeover attempt had eaten into profits at one of Scotland’s biggest mine operators.

The Aim-quoted firm, which is based in Doncaster but has all five of its open-cast pits north of the Border, revealed last month that a takeover bid from an unnamed third party had been abandoned.

Costs associated with the unsuccessful takeover talks have eaten into the company’s surplus, with ATH now expecting its full-year adjusted trading profit to be “close” to City forecasts of £200,000. Shares dipped 1.3 per cent to 38.5p.

In June, ATH revealed that pre-tax losses had widened to £3.6 million from £1.9m, two months after the company issued a profits warning for the full year.

The group yesterday warned that the cost of diesel and tyres had increased by £6m year on year during the second half of its financial year. Its full-year results are due on 7 December.

The company added: “The board now believes that there is little likelihood that the current level of these costs will reduce in the foreseeable future.”

It estimated that the cost of clearing up its sites will rise by £1.6m due to higher diesel and rubber costs, which will be booked as an exceptional item in its accounts this year.

Those extra costs are likely to widen the firm’s full-year pre-tax losses from £3.5m to £5.1m, according to analysts’ estimates.

No dividend will be paid this year, but the situation will be reviewed at next year’s interim results, ATH added.

The miner is expected to return to profit over the next three years as three “legacy” contracts that were signed at lower coal prices come to an end. The first will end in March, with the second finishing in 2013.

ATH, which lists three of the UK’s six big power companies among its clients, yesterday said that sales volumes had risen by 36 per cent in the six months to 2 October to 960,000 tonnes, with average sales prices rising to more than £50 a tonne from £43.68 in 2010.

Asa Bridle, a metals and mining researcher at Seymour Pierce stockbrokers, which acts as a market maker for the company, said: “ATH’s pre-close trading statement brings the usual mix of light and shade.

“While the upcoming contract changes are set to alter the profitability profile of ATH over the next two to three years, the recent takeover talks also add shorter-term merger and acquisition interest to the stock.

“Though the talks did not end successfully on this occasion, we believe ATH’s current low market valuation and potential earnings transition remains an attractive combination to parties looking for acquisitions in the UK coal sector.”

ATH cut its debt – which had stood at £34.5m on 3 April – by £3m and renegotiated its banking facilities.

The company, which was founded in 1998 and joined the Alternative Investment Market in 2004, extracts coal from: Muir Dean, in Fife; Glenmuckloch, in Dumfries and Galloway; and Duncaziemere, Netherton and Skares, all in East Ayrshire.