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2020 / 2021 Edition

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Hargreaves acquire assets from Scottish Coal

Broken Cross opencast coal mine

Completion of acquisition of certain assets from liquidators for cash consideration of £8.4 million 

FOLLOWING an intensive period of due diligence, Hargreaves Services plc have completed a transaction to acquire certain assets from the liquidators of Scottish Coal in a deal 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, for a cash consideration of £8.4 million.

The property interests include Scottish Coal’s rights and interests in various wind farm projects that were being progressed through design and planning. Hargreaves intend to progress these projects, together with one specific development property, as a joint venture with the independent Scottish Mines Restoration Trust (SMRT), but do not currently intend to take the projects beyond the realization of the design and planning stages. Scottish Coal will share in any near-term profits realized on the wind farms.  

The second phase of the transaction involves the transfer of Scottish Coal’s interests in five former active mining sites, including Broken Cross and House of Water. These sites have been hived down into separate new companies (Hivecos) which will continue to be owned by Scottish Coal, with the objective of resolving outstanding restoration liabilities.

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 recommenced as quickly as possible and Hargreaves expect 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 1 million tonnes of production, the company expects to invest between £12 million and £15 million of capital. 

Hargreaves have also been granted exclusive options to purchase the shares in the Hivecos. The consideration of £8.4 million 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 be completed on a site-by-site basis over the next 12 months.

In the meantime, Hargreaves will continue to provide mining, coal marketing and restoration services.

Hargreaves are 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 their review and due diligence on coal reserves, planning status, coal quality and overburden ratios, Hargreaves estimate 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.

Gordon Banham, chief executive 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.’

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