Fire raises doubts about Daw Mill coal mine

Mon Feb 25, 2013 9:59am GMT

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(Reuters) - A fire has closed UK Coal's underground Daw Mill Colliery in Warwickshire, raising more doubts about the future of a mine already under threat of closure.

Shares in Coalfield Resources, which shares ownership of UK Coal with the UK Coal Employee Benefit Trust, fell 9.4 percent.

Even before Friday's fire, UK Coal was demanding more efficiency to keep open Daw Mill, one of the last few remaining deep pit mines in Britain.

"The fire puts that security for Daw Mill seriously in doubt and the Company will consult over coming weeks with the workforce on the implications for them," UK Coal said in a statement, adding it would take at least three to six months to get the mine operational again.

Daw Mill produced 0.8 million tonnes in the six months to June 30, 2012, about a quarter of UK Coal's output.

"Daw Mill was UK Coal's mainstay asset, but also its most troublesome asset, both operationally and in terms of labour relations. The fire may, unfortunately, be the death knell for it, at least in its current structure," Investec Securities said in a note.

Workers were evacuated from the mine on Friday when the fire broke out at a depth of 540 metres (1800 ft), 8 km (5 miles) from the bottom of the main shaft.

UK Coal said ventilation to the mine had been cut off in an attempt to starve the fire of oxygen and there was no risk to residents living close to the mine.

"This fire is on a scale not seen for decades," UK Coal Chief Executive Kevin McCullough said.

The mining company has been vigorously cutting costs at Daw Mill and already reduced headcount there.

UK Coal, which also owns two other deep mines, employs almost half of Britain's 6,000 coalminers. It supplies the fuel for 6 percent of UK electricity.

The company, dogged down by debt and losses, avoided an imminent debt default and the closure of operations after completing a major debt restructuring with shareholders in December.

Despite a surge in domestic coal use, British coal miners have been hit hard by slumping international coal prices and high diesel costs.

Most deep mines closed in Britain after the 1984 miners strike when the industry shrank from 100 million tonnes a year output and a workforce of several hundred thousand to less than 40 short-life opencast mines and under 6,000 workers in 2011.

In October last year, industry sources estimated that domestic mining would supply less than a third of Britain's coal needs.

Coalfield Resources' shares fell to 5.76 pence at 09:45 a.m. on Monday on the London Stock Exchange.

(Reporting by Brenton Cordeiro in Bangalore; Editing by Rodney Joyce)

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