Here’s a business that wants energy prices to rise

Those of you who are aged 35 or less probably won’t remember the Miners Strikes and the rapid decline of the UK’s mining industry. It is easy to forget that Britain still has a coal mining industry. So I was interested in news from UK Coal about how rising energy prices are benefitting their business and future investment decisions…

When you visit the UK Coal website, an interesting image greets you - a wind turbine. This is a sign that UK Coal’s business has diversified in recent years, although it’s core business (if you will excuse the pun) is coal mining.

UK Coal is a quoted company. It released half-year profit numbers last week and, as part of the announcement, explained how rising coal prices were improving the potential returns from its existing coal mines and seams. It stated:

“The sharp increase in the market price of coal, up around 45% from the start of the year to the end of July, and its strong forwardcurve, transforms the outlook for our mining operations.”

According to the Guardian:

“UK Coal is seeking to cash in on rising energy prices through higher production and the end of long-term, low-priced legacy contracts.

The company is already investing £55m each in its collieries at Thoresby in Nottinghamshire and Kellingley in West Yorkshire to open up new reserves and is expected to decide within the next six months whether to reopen the Harworth mine near Doncaster, which has been mothballed for more than two years.”

A good example of investment appraisal in action - and how changes in potential returns (measured over the long-term) can turn a poor investment into a very good one.