Hargreaves favourite to acquire ATH

Aim-listed ATH, which is headquartered in Doncaster but has all its open cast mining operations north of the Border at sites in East Ayrshire, Dumfries and Galloway and Fife, last week confirmed it was in discussions over a possible offer for the company.

Hargreaves, which has diversified from its original haulage business, owns Yorkshire's Maltby colliery and also operates Hatfield deep mine near Doncaster. Also listed on Aim, it is valued at some 287 million compared with ATH's market capitalisation at the end of last week of 22m.

While there would also seem to be clear synergies between ATH and Scottish Resources Group (SRG), Scotland's biggest open cast coal miner, analysts have ruled the company out as being a potential bidder.

"They don't have the cash to do a deal like that and they don't have the currency in terms of shares as they are privately owned," said Collins Stewart mining analyst Tim Dudley said. "ATH also has a fair amount of debt which I don't think they'd want to take on, particulary at a time when I think some of the larger shareholders are looking more at an exit than expansion."

ATH, which employs more than 200 staff in Scotland, is one of the largest producers of coal in the UK, with an output of two million tonnes a year.

Last month it posted pre-tax losses of 3.6 million for the first six months of its financial year because of lower-than-expected coal reserves at its Glenmuckloch site in Dumfries and Galloway and issues with old workings at Muir Dean in Fife. It is thought to have debts of around 34m.

Hargreaves recently won conditional planning permission to reopen the Tower Colliery project in South Wales and it is thought that it may be keen to have access to additional mining equipment through ATH to help develop the site.

The company has also been in the market for acquiring other mining interests and last year considered buying UK Coal, the Doncaster-based group although later walked away from the deal.

While Hargreaves has declined to comment on ATH, Dudley said the company was the most likely bidder for the firm.

"I think it would be quite a good fit for them as Hargreaves' mining business is underground where production can be a bit lumpy and and they could offset that with ATH's more stable production from open cast operations."

Last year Alloa-based SRG pulled its planned flotation at the last minute citing challenging markets. The firm had aimed to achieve a valuation of 220m.

SRG operates nine open-cast coal mines in Scotland and accounts for about one-fifth of total UK coal production, supplying Longannet power station. The group has more than 1,000 employees.

Its main shareholder is investor group Parkburn, led by Colin Cornes.

He took a controlling stake in what was then called Mining (Scotland) for a "nominal" sum in 2000.