Durham-based mining and transport group Hargreaves Services say 120 employees at its Monckton coke plant have been warned of potential redundancy as the firm decides the fate of the operation.
Hargreaves called into question the future of its 130 year-old South Yorkshire operations in early September, when it revealed huge uncertainty in European coke markets threatened its business.
The firm said a significant turnaround in market stability and customer demand would be required to safeguard Monckton’s future and confirmed it had entered into consultation with the employees at the South Yorkshire site.
A note to Hargreaves shareholders said: “Although Monckton continues to benefit in this financial year from a number of higher priced legacy contracts and was budgeted to make a profit of £2m, the outlook beyond this year is very poor given current market prices.
“If the decision is taken to proceed with closure, whilst the current year profit would be reduced to nil reflecting the cancellation and rescheduling of a number of customer contracts, the closure would result in the unwinding of significant working capital tied up in the business.
“The combined impact on FY15 and FY16 of this working capital unwind would be in excess of £22m. The cash flows over this period would be partly offset by cash closure costs of approximately £3m and remediation costs of £1.8m.”
Gordon Banham, chief executive officer of Hargreaves, said: “Hargreaves acquired Monckton in 2005. Whilst great progress has been made by the team in improving efficiency and environmental performance over the past ten years, the coke markets have become increasingly challenging for the business.
“I have worked closely with the management team and it is with great personal sadness that we find ourselves having to start this consultation process.”
The Monckton consultation is the latest development in a “streamlining” process in response to challenging coal and coke markets, caused by growing emphasis on renewable energy.
At the same time as the announcement, Hargreaves also signalled its intention to raise the dividend payout level to 40% of underlying profit after tax, due to extra capital unlocked by the restructuring plan.
Hargreaves board said it intends to initiative a rolling share buy-back programme with any shares purchased to be held as treasury shares.
In early September Hargreaves reported a 6% rise in pre-tax profit to £55.1m, noting the positive momentum behind its surface mining operations.
The firm highlighted a five-year deal with China Light and Power in Hong Kong, and also noted its sale of Hartlepool’s Imperial Tankers Limited in a £26.9m deal.
Within this latest update to shareholders, Hargreaves said underlying performance and cash generation for the financial year continued to be line with management expectations.
The business also said it would continue to provide “modest” capital to support growth opportunities in its Industrial Services business, and acquisition of surface mining assets.