28 May 2012 – trading update

There has been some very disappointing news from Hargreaves Services, which has seen its share price slashed as a result.  Unusual geological conditions have been encountered at Maltby which resulted in increasing ingress of water, oil, gas and other hydrocarbons.  Conditions were contained to ensure safe working continued but ingress levels increased significantly on 17 May and work was suspended.  These conditions have not materially subsided and following careful consideration of the health & safety and operational risks, a decision has been taken to abandon further development on the tailgate and to pull the face back to a safe point.  The company has stated that Maltby has never encountered such conditions before and the issue appears to be localised to one section of the mine.

This incident will not affect production and should not affect financial results in the year ending 31 May 2012.  However, it is clear this incident will result in a delay in the commencement of production on the T125 face and the company estimates that profit in the year ending 31 May 2013 will be negatively impacted by between £12m and £16m.  We feel that the bad news has been more than factored into share price.  The conditions encountered are highly unusual and the company remains confident in its prospects for the medium to long term.  We now rate the shares as a BUY FOR RECOVERY.