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Uk Coal Losses Grow Along With Debts

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Huge writedowns in the valuation of land owned by UK Coal, Britain's leading coal mining group, have led to £80m losses in the first half of the year, mounting debts and urgent talks with lenders.

Banks supporting the company have been forced to defer some of the covenants on £72m worth of loans while opening discussions on extending more than £100m worth of funding deals, which come to an end next year.

The situation has been complicated by separate difficulties at one of UK Coal's three main lenders, Iceland's Landsbanki, but UK Coal chief executive Jon Lloyd said that talks with Lloyds Banking Group and other lenders were proceeding well: "The banks are being very supportive of this business ... the further than expected downgrade in land values are not causing difficulties to us and them."

Shares in UK Coal fell more than 3.5% to 122.5p after it reported a pretax loss of £81.5m for the six months to 27 June compared with a deficit of only £9.9m during the same period of 2008, while total debt levels have risen to £190m from £137m.

Sales of coal fell to just under £160m from £173m, but the main damage to profitability came from a near £60m writedown in the value of its 43,000 acres of property. This land, mainly located around disused collieries and earmarked for housing and light industrial redevelopment schemes, was a significant source of potential income until the recession hit prospects and prices.

The seriousness of the situation is highlighted in the small print attached to the interim financial results: "The group [uK Coal] has agreed with its bankers the deferral of certain loan to value property covenants in respect of £72m of facilities. Breach of covenants could result in the need to pay down in part some of these loans or a renegotiation of terms or, in extremis, a reduction or withdrawal of facilities by the banks concerned."

PricewaterhouseCoopers, the mining company's auditor, does not qualify the accounts, which would signify the most serious worries. However, it said that UK Coal's ability to continue as a going concern depended on a number of factors "in particular the outcome of discussions regarding the extension or renewal of its banking facilities".

How many companies had very healthy balance sheets because each year they increased the value of their properties?

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