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How to raise 850 M pounds sterling to buy English coal.

Richard Budge, chairman of RJB Mining Ltd., the winner of the bids for British Coal in England, was in an upbeat mood when he addressed the Royal School of Mines Association in London in April. Against media innuendo and criticism he had succeeded in December 1994 in raising the necessary finance to purchase virtually all the major remaining English collieries. RJB Mining's [pounds]850M ($1,360M) bid outclassed that of his competitors by about [pounds]200M ($320M) and he was roundly condemned in certain quarters for paying too much. However, as he said, "The press never said that the British taxpayer had received [pounds]200M too much."

RJB Mining Ltd. now controls 22 underground mines and 20 opencast sites in England and is currently producing approximately 38M mt/yr coal, 80% of it from underground and all profitably. How did this come about?

Richard Budge ascribed the success of his company to enormously hard work on the part of all employees and a track record of proven profitability. Moreover, to convince the City of London that RJB Mining would be a profitable steward of the privatized British Coal and to raise the necessary finance, it was necessary to demonstrate operational competence in the management of underground mines.

AF Budge Ltd., Richard's elder brother's construction company, branched out into opencast mining in order to make fuller use of the large construction machines it had purchased. British Coal put it on the official tenderer's list for opencast contracts in 1974 and it became so successful, once winning seven of nine contracts on offer, that British Coal eventually decided to limit them to 25% of the contracts offered.

One of the reasons for its success, Richard said, was that it was the first of the opencast contractors to invest heavily in the new larger excavators and trucks that were then becoming available. For example, AF Budge (Mining) Ltd. was the first U.K. contractor to order the O&K RH 120 hydraulic excavator, the first to order the RH 200, and the first use Caterpillar 789 trucks.

In 1990, having built a sound reputation in opencast coal mining and with the privatization of British Coal on the horizon, AF Budge (Mining) purchased the private Blenkinsop drift mine in Northumberland. At the time the number of men permitted to work underground in private coal mines was restricted to 25, a ludicrously low number, which successful parliamentary lobbying eventually raised to 150. A longwall was subsequently installed and production has risen from an initial 50K mt/yr to today's 300K mt/yr coal.

Shortly thereafter, the parent company, AF Budge Ltd., ran into financial difficulties and the directors decided that several interests, including AF Budge (Mining) Ltd., should be sold. Richard Budge mounted a management buyout for the mining interests. They were acquired for [pounds]102M ($160M) in February 1992 and renamed RJB Mining Ltd.

Budge now had a track record in opencast and drift mining but if it was to convince investors that it was a serious bidder for British Coal it still needed to demonstrate the ability to operate deep mines, Further successful parliamentary lobbying eventually convinced the government to let private operators bid for those collieries British Coal had already placed on a care-and-maintenance basis. In early 1993 RJB Mining Ltd. acquired the Clipstone, Calverton and Rossington collieries, all of which are still working today.

In June 1993, RJB Mining was floated on the stock exchange. In December the Young Group, another private U.K. coal operator was acquired, and a year later RJB Mining had won the bidding for English Coal.

Richard Budge sees the immediate objective as securing the British coal industry's future. He said that it was clear for all to see that coal prices could only move up from the doldrums they have been in for the past few years. Huge increases in coal demand, especially in Asia, were not being matched by corresponding increases in supply. The Australian and U.S. producers were not making profits at existing price levels and the South Africans and Colombians were constrained by insufficient port facilities. The prospectus for the bid for British Coal had been based on an average price of $37/mt over the next three years yet by December 1994 coal prices were already hovering around $42/mt. "We are already in a position to be able to displace all imported coal" he said. And he expects good coal prices for the next five to 10 years.

Referring to existing operations, Budge said that 1995 should see a cost reduction of about 12% with perhaps a further 6% in 1996. He gave due credit to the former management of British Coal who he said had made enormous strides over the last five years in changing working practices and bringing costs under control.

Opencast mining would be continued at approximately the present levels as opencast production was necessary for blending with underground coals. However, he agreed with a questioner that further operating cost reductions in the opencast sector were unlikely. The reasons being that the increase in size of mining equipment had run its course and planning regulations were reducing the surface area permitted to be worked at any one time.

The underground mines are all profitable with Ellington, which has workings 14 km under the North Sea, usually one of the four-lowest cost collieries. At the other mines no face is more than 3.5 km from the shaft.

Budge sees a good future for the British coal industry as coal-based electricity currently costs 2.1p/kWh (3.36[cents]) compared with gas at 2.7p/kWh (4.32[cents]). Longer term, but before 2003, he sees potential for integrated power projects using clean-coal technology. The existing contracts with the generators, which expire in March 1998, are sufficient for the company to repay its debts. He would not be drawn on the status of negotiations for new contracts but intimated that under the existing scenario there was more to be gained by delaying negotiations.

However, a negative note was struck by the National Union of Mineworkers, which in mid-May voted in principle to be prepared to carry out selective one-day strikes in pursuit of claims for higher wages and other demands.
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Title Annotation:RJB Mining
Publication:E&MJ - Engineering & Mining Journal
Date:Aug 1, 1995
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