For immediate release 5 July 2013
HARGREAVES SERVICES PLC
("Hargreaves" or the "Company" or the "Group")
Acquisition of Assets from The Scottish Coal Company Limited (in liquidation) ("Scottish Coal")
Hargreaves Services plc (AIM: HSP), the UK's leading supplier of solid fuels and bulk material logistics, announces that it has completed the acquisition of certain assets from the Liquidators of Scottish Coal for £8.4m. The acquisition, which expands the Company's portfolio of surface mining assets, is being funded from the proceeds of the fundraising announced on 17 April 2013.
Background
On 10 May 2013, Hargreaves announced that it had been named by the Liquidators of Scottish Coal as the preferred bidder for certain assets of Scottish Coal and its related companies. Following liquidation all coal extraction operations ceased.
Completion of transaction
Following an intensive period of due diligence the Company today announces that it has completed a transaction to acquire certain assets that has been structured in three phases.
The first phase involves the acquisition of a property portfolio of approximately 30,000 acres together with unencumbered plant and equipment. The consideration for these assets is £8.4m payable in cash on completion. The property interests include Scottish Coal's rights and interests in various wind farm projects that were being progressed through design and planning. Scottish Coal will share in any near term profits realised on the wind farms.
Hargreaves intends to progress the wind farm projects, together with one specific development property, as a joint venture with the independent Scottish Mines Restoration Trust ("SMRT"), which will provide a future potential income stream to the Trust. The Group does not currently intend to take these projects beyond the realisation of the design and planning stages.
The second phase of the transaction involves the transfer of Scottish Coal's interests in 5 former active mining sites, most notably at Broken Cross and House of Water. These sites have been hived down into separate new companies (the "Hivecos") which will continue to be owned by Scottish Coal. The objective of these companies will be to resolve outstanding restoration liabilities. Hargreaves will assist with the process of seeking an optimal solution in light of the level of funding available through continued mining activity at the sites and the existing restoration bonds.
On establishment of each of the Hivecos the care and maintenance of the site will be outsourced to Hargreaves. Operations to support revised mining and restoration plans will be re-commenced as quickly as possible and Hargreaves expects to bring production of approximately 1 million tonnes on line in the current financial year. As and when sites become operational, Hargreaves will acquire the necessary plant and equipment. To support the target of one million tonnes of production, Hargreaves would expect to invest between £12m and £15m of capital.
Hargreaves has been granted exclusive options to purchase the shares in the Hivecos. The consideration of £8.4m includes the cost of the options to acquire the Hivecos for a nominal sum. As and when the outstanding restoration issues on each site are resolved on commercially acceptable terms Hargreaves will, in the third phase of the transaction acquire the relevant Hiveco from Scottish Coal and fully integrate it into the Group. This phase is expected to complete on a site by site basis over the next 12 months. In this interim period, Hargreaves will continue to provide mining, coal marketing and restoration services.
Hargreaves is also planning to bring additional new sites into production. The acquisition of land and assets from Scottish Coal will provide significant additional reserves and prospect sites. Based on our review and diligence on coal reserves, planning status, coal quality and overburden ratios, Hargreaves estimates that the coal reserves at the Hiveco sites that are viable at current coal prices are in excess of 3 million tonnes. Reserves at other key pipeline sites are estimated to be around 12 million tonnes. Hargreaves will work with independent experts, SRK Consulting (UK) Ltd, to independently review coal reserves before any commitment is taken to commence or re-commence operations.
Hargreaves is committed to adopting an appropriate and responsible approach to the management of its sites and will both seek and welcome close collaboration with regulators from Local Authorities, SEPA and other regulatory groups.
Gordon Banham, CEO of Hargreaves, commented, "This transaction represents a further significant step in our strategy to acquire key surface mining assets which, we believe, will enhance shareholder value. The portfolio of property interests being acquired provides a strong platform to continue our investment in the Scottish coal industry which, responsibly managed, will benefit local communities with continuing employment and enable our continued support of the SMRT in addressing the legacy of unfulfilled restoration obligations."
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 |
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PPS Group |
0131 226 1951 |
Donald Anderson/Jeremy Hamilton |
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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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