SRG earmarks float cash to buy rival's Fife mine

SCOTTISH Resources Group is understood to be in advanced talks to buy an open-cast mine site in Fife from English rival UK Coal as it prepares to raise £25 million in a flotation this week.

The prospectus for SRG, which operates nine open cast mining sites in central Scotland, said it was raising money in part to refinance the acquisition of a surface mine with reserves of about 600,000 tonnes of coal.

Loss-making UK Coal confirmed last week that it was in advanced negotiations to sell its Blair House mine at the village of Oakley in Fife in an effort to lower debt and boost profits.

Both firms declined to comment on the deal before it is due to complete this week.

Doncaster-based UK Coal last week revealed the extent of its financial difficulties. It unveiled a 94m half-year loss compared with an 81.5m loss a year earlier. Its burden of debt was around 255m.

Last month, UK Coal announced it had failed to secure a merger with haulier, Hargreaves Services. Despite a 100m fundraising last year, chief executive Jon Lloyd has admitted debt was a "situation" for the firm.

SRG, owners of Scottish Coal, aims to launch its IPO this week although it still has yet to confirm the date or an indicative share price. The firm expects to achieve a value of 250m.

In the year to March 2010, SRG's coal production grew 12 per cent to 3.4m tonnes, and turned around a loss of 12.25m in 2009 to a pre-tax profit of 28.5m. Revenues also rose 59 per cent to 230m and underlying earnings jumped nearly 200 per cent to 48.2m. Last year the company had a 20 per cent share of total UK coal production, second only to market leader UK Coal, and a third share of UK surface-mine coal production.

The company has built up a board of well-respected veteran directors ahead of its flotation. They include Sir Peter Burt, former chief executive of Bank of Scotland, Charles Hammond, chief executive of Forth Ports, and Brian Wilson, former UK energy minister.

SRG, which was formed from the privatisation of British Coal in 1994, sells about 90 per cent of its coal to the UK's six biggest power generators.

Sources close to the firm were remaining tight lipped last week following the lower-than-expected flotation price achieved by grocery delivery firm Ocado, which was forced to cut its IPO price by 20 per cent.

The energy sector has also fared poorly on nervous markets. Earlier this month Fairfield Energy pulled its planned 330m float.