Shares in British coal firm Hargreaves Services (LON:HSP) fell 20 per cent today even though it revealed record profits for the twelve months.
Revenues were up 24.6 per cent at £688.3 million leading to a 17.3 per cent rise in pre tax profits to £43.1 million.
The negative share price response comes amid concerns over the Maltby mine, in south Yorkshire, where ‘geological problems’ threaten the operation.
Analysts say the problems and the potential cost of resulting delays make the future of the Maltby mine uncertain.
Westhouse Securities today said that it is expecting the mine to close which would result in a £16 million impairment. Analyst Michael Donnelly believes this would be less than the forecast losses associated with upcoming development work.
He says that equipment sales would cover the cost of redundancies and the selling of the loss making mine should not impact the £8 million earnings that he expects Hargreaves to make from the Mockton mine this year.
Donnelly also highlights that Hargreaves’ management is still comfortable with its position in regards to coal prices.
“We believe that a mothballing of the Maltby mine will result in a material de-risking of the Hargreaves investment case, and will provide a more stable story for investors,” Donnelly said in a note, in which Westhouse repeated a ‘buy’ recommendation for the shares.