For immediate release 16 May 2013
HARGREAVES SERVICES PLC
("Hargreaves" or "the Company")
Acquisition of Assets from Aardvark (TMC) Limited (in creditors' voluntary liquidation)
Hargreaves Services plc (AIM: HSP), the UK's leading supplier of solid fuels and bulk material logistics, announces that, following the appointment on 15 May 2013 of KPMG as liquidators of Aardvark (TMC) Limited ("Aardvark"), Hargreaves has acquired a number of assets related to the business of Aardvark for £10.4m. Aardvark is the principal operating subsidiary of the ATH Group. The acquisition is being funded from the proceeds of the fundraising announced on 17 April 2013 to expand the Company's portfolio of surface mining assets.
Background
On 1 March 2013, Hargreaves announced that, following ATH Resources PLC ("ATH") entering administration, Hargreaves' subsidiary, Hargreaves Surface Mining Limited, had purchased secured debt (the "Debt") owed by Aardvark and certain other companies within the ATH Group. The principal amount of the Debt at the time of acquiring the debt was £12.5m and was secured over the assets of Aardvark and other ATH Group companies. The Debt was purchased from BECAP Capital Coal Limited ("BECAP")for a cash sum of £5.0m.
Hargreaves purchased the Debt after extensive discussions with many of the key stakeholders of ATH Group, including management, landowners, local authorities and the Scottish Government.
Following the acquisition of the Debt, Hargreaves has supported the project to restructure the Aardvark business in conjunction with management and major stakeholders. The objectives of the restructuring were two-fold. The first was to create an investment platform that allows viable sites to continue to operate thereby safeguarding employment. The second was to create a new structure and process, independent of ongoing operations, to helpaddress outstanding historic restoration obligations. Any profit made by Hargreaves on the acquisition of the Debt was to be made available to support the historic restoration.
Completion of Restructure
The Company today announces that, following the appointment of partners in KPMG as liquidators of Aardvark on15May 2013,Hargreaves has completed a series of transactions that has resulted in it acquiring £10.4m of assets relating to Aardvark's mining business. The consideration for these assets was met through a combination of cash and settlement against the secured debt.At the time of the liquidation, Hargreaves secured debt amounted to £13.1m. In total, after costs and expenses, Hargreaves expects to recover approximately £10.1m of value from its secured debt.In addition Hargreaves hascommitted to offer employment to 237members of staff.
To provide an opportunity to continue operations at Aardvark's two operational sites, Netherton and Duncanziemere, Aardvark's interest in these sites has been hived down to two new companies (the "Hivecos"), OCCW (Netherton) Limited and OCCW (Duncanziemere) Limited. These Hivecos will continue to be owned by Aardvark (in Liquidation) andthe objective of these companies will be to resolve outstanding restoration liabilities. Included in the assets acquired by Hargreaves is an optionto purchase the shares in the Hivecos at a future date.
In the interim, Hargreaves will provide mining services to the Hivecos andtake responsibility for producing and marketing the coal and for funding any future incremental restoration liability. Hargreaves will exercise the option to acquire the shares of the Hivecos and fully integrate them into the Groupin the event that outstanding restoration issues are resolved on commercially acceptable terms.
Scottish Mines Restoration Trust
The Debt was acquired for a sum of £5.0m from BECAP. The transaction costs incurred by Hargreaves, together with payment commitments made to other stakeholders to facilitate the transaction are estimated tototal £4.0m, resulting ina total debt transaction cost ofapproximately £9.0m.
In keeping with Hargreaves' original pledge, an initial contribution of£1.1m, the difference between the expected £10.1mrecovery from the debt and the £9.0mof debt transaction cost, will be made available as an initial contribution to the Scottish Mines Restoration Trust ("SMRT").The SMRT has been established as a non-profit organisation and whilst it will operate independently of Hargreaves, we will continue to support the SMRT going forward. It is hoped that other industry participants will follow this lead in order to help address the industry's outstanding legacy restoration issues.
Mining Operations
Hargreaves is targeting to produce over700kT in the next financial year from the two sites owned by the Hivecos. Hargreaves has also entered into an agreement with the Buccleuch Estate to provide both restoration and mining services at the Glenmuckloch site.The site was left mothballed and unrestored following over five years of mining. It is hoped to commence operations on the site in early summer 2013. Production of coal from the Glenmuckloch project is expected to take the Groups production in Scotland to around one million tonnes in the next financial year. The project will also provide a restoration solution for a very high profile site.
The Group expects to make further acquisitions of plant and equipment in the coming weeks. In the placing document of 17 April 2013 we estimated that each one million tonnes of production capacity would require between £25m and £30m of capital. In respect of the capacity we are targeting to bring on line as part of this transaction we would expect to be at the lower end of that range.
The Group is also actively progressing a number of other pipeline sites, several of which are capable of being significantly progressed or even started within the next 12 months.
Mining Reserves
The acquisition of land and assets from Aardvark will provide additional reserves. Hargreaves estimates that the proven coalreserves at sites with planning permissions are in excess of 3 million tonnes. Proven coal reserves at sites that are in the planning process are around 2 million tonnes.
Significant diligence has been done by Hargreaves on the coal reserves, planning status, coal quality and overburden ratios at all current and key pipeline sites. Hargreaves' internal assessment of the coal reserves, planning status coal quality, overburden ratios and mining plans have been independently reviewed and confirmed by SRK Consulting (UK) Limited.
Gordon Banham, CEO of Hargreaves, commented, "This transaction brings to an end a long and complex restructuring process. Whilst it has been a lengthy and difficult exercise, we are very pleased with the end result. In comparison with an unstructured liquidation, we have saved or created over 230 jobs and been able to continue mining operations at two of the key sites. The number of properties that have had to be disclaimed by the liquidatorshave been significantly reduced. The continuance of operations at Netherton and Duncanziemere, together with the planned resumption of activity at Glenmuckloch, will greatly assist in achieving long term restoration. We are pleased to have been able to help and support the SMRT which we hope will carry out an effective role in mitigating the legacy of unfulfilled restoration obligations following the financial troubles of ATH and Scottish Resources Group. In relation to the sites that have been disclaimed we will continue to engage with stakeholders to help find the best solutions. We will use the staff and operations that we have acquired to continue to invest in developing a profitable and sustainable surface mining business in Scotland."
For further details:
Hargreaves Services |
0191 373 4485 |
Gordon Banham, Group Chief Executive |
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Iain Cockburn, Group Finance Director |
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Buchanan |
020 7466 5000 |
Mark Court / Fiona Henson / Sophie Cowles www.buchanan.uk.com |
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PPS Group |
0131 226 1951 |
Donald Anderson |
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N+1 Singer (Nomad & Joint Broker) |
020 7496 3000 |
Sandy Fraser / Nick Owen |
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Jefferies International Limited (Joint Broker) |
020 7029 8000 |
Sara Hale / Harry Nicholas |
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