Surging coal prices could help speed up coal trader and miner Hargreaves Services' (HSP:AIM) plans to unlock 300p a share in business value.
Struggling Hargreaves has been a casualty of falling energy prices over the last three years, as well as recent mild winters and coal power station closures as the UK’s energy policy attempts to shift away from fossil fuels.
European coking coal prices bottomed in February and have gained more than 50% since, with thermal coal price gains, used to fuel power stations, not far behind. Coal is being imported from China into Europe to try and stem the price gains, according to a Bloomberg report.
Hargreaves, which is winding down its coal trading, still boasts coke and coal inventories of around £20 million, versus a market capitalisation of £61 million. Firmer demand and prices may help the business unwind stock more quickly at better prices, according to a person with knowledge of the business.
However, the benefit is expected to be one-off because Hargreaves’ remaining mining assets will produce coal for specialist markets including domestic, industrial and steam trains, where prices are less sensitive to global pricing.
Most of its plan to deliver 300p a share in shareholder value involves reducing exposure to energy markets by developing transport, logistics and construction businesses alongside a scaled down coal distribution unit.
Shares in Hargreaves trade at 190p a share, a discount to tangible book value of 401p a share reported through 31 May 2016.
Book value may not be a reliable gauge of value at mining companies, however, as shareholders in UK Coal found out when it was wound up in 2013. Most assets were sold or transferred to the company’s pension scheme, though shareholders retained some of their investment via a shareholding in property vehicle Harworth (HWG).
Land previously used for coal mining, of which Hargreaves boasts around 18,500 acres and plans to develop, may also incur unexpected costs for environmental remedial work, further reducing value.
Chief executive Banham bought £348,000 shares in April at 170p a share, according to Shares' online Director Dealing tool.
Shares in Hargreaves Services are down 26% year-to-date at 190p.