Shares in UK Coal have slumped by 8 per cent after the company’s biggest customer revealed it that may sue over the failure to supply an estimated 2.75 million tonnes of coal.
UK Coal said that it had invoked an “Act of God” clause in its contract to cover the delivery shortfall to Drax Group, which runs the country’s biggest coal-fired power station. The mining company said that it had been prevented by “geological issues” from meeting its obligations.
However, Drax warned that it was prepared to sue for extra costs incurred in replacing the 750,000 tonne shortfall in UK Coal deliveries in the year to March, with a further 500,000 shortfall expected annually until the supply contract ends in 2009.
“Drax does not accept UK Coal’s claim that the force majeure provisions in the contract can be invoked and will be seeking recovery of any additional costs it incurs from UK Coal,” the electricity generator said.
Advertisement
Drax has estimated at £10 million the impact of the shortfall on underlying 2005 earnings and £5 million the impact on the next four years.
UK Coal’s announcement follows the failure of efforts to raise production at the Kellingley mine in Nottinghamshire, near to the Drax plant, beyond its historical 1.7 million tonnes. While UK Coal operates a further six deep mines, transporting output to Drax would raise “economic issues” besides jeopardising other contracts, a UK Coal spokesman told Times Online.
He added that UK Coal, which sells about 20 per cent of its production to Drax, was “very confident” of its ability to use the force majeure clause.
UK Coal shares stood 11.5p lower at 130.5p in morning trade.