Robert Anderson in Darkov, Czech Silesia -

New World Resources (NWR), the struggling London-listed Czech coal miner, says its cost-cutting drive has been so successful that it may be able to keep the Paskov mine open. The planned closure caused a political storm ahead of the last general election in 2013.

Dale Ekmark, managing director of the OKD operating company, says unit costs at Paskov have been reduced from more than €160 per tonne to just above €100 since it finalized a deal early last year with the incoming Social Democrat-led government to delay the mine's closure. He told journalists he could not guarantee that the mine would be saved, but that such a solution is "a lot closer than it was a few years ago".

NWR agreed with the Czech government in April to delay Paskov's closure until the end of 2017 in return for CZK600mn (€22mn) in state aid towards the closure costs. Ekmark now says unit costs could be reduced further, to €95 a tonne, and that OKD is in the planning stage of "going beyond 2017". A final decision will be made next year, he adds.

NWR was forced to restructure its finances last summer, after its debt burden became insupportable. That followed three years of losses on the back of depressed global coal prices and high operating costs. 

Lenders agreed to cut the group's gross debt from €825mn to €535mn and extend its maturity to 2020, while providing another €35mn in financing. In return, shareholders - including Czech billionaire Zdenek Bakala - agreed to inject €150mn of new equity.

The Paskov way

The cost-cutting lessons learnt at Paskov will now be applied across OKD's other mines. "We are now bringing the 'Paskov way' into the rest of the company," Ekmark says.

OKD reduced its headcount by 7% to 14,657 in 2014, and expects to cut it by another 1,600 - mainly contractors - this year. The staff cuts helped OKD shrink overall unit operating costs to €67 a tonne last year; it aims to reduce that to €65 in 2015 by finding another €80m in savings. Production will be trimmed from 8.6mn tonnes (mt) in 2014 to 7.5mt-8mt, with a further fall to 7mt in the future, to be secured by focusing on the most viable deposits.

Ekmark says OKD has pre-sold three quarters of this year's coking coal production, at an average price of €93. The 9% rise on 2014 prices has been achieved by pressing customers to pay almost the same price as for imported coal, he says.

That effort offers the company hope of achieving its target of remaining ebitda positive in 2015, although it would still leave Paskov lossmaking. Earnings from continuing operations before interest, taxation and depreciation turned positive last year at €11m on revenues down 20% to €676m.

NWR is also halving capital expenditure this year to around €30mn-40mn - a "mindset change" according to Ekmark. In addition, group finance director Marek Jelinek says following the restructuring he expects to see interest costs cut by €60mn this year, partly by paying servicing costs in equity rather than cash.

Cash burn challenge

This should all help the group start to staunch its cash burn. NWR - which had gross cash of €128mn at the end of December - had a negative operating cash flow of €56mn last year, a burn rate that would force it into another restructuring within three years.

"The big question is whether they can become cash [flow] neutral," says Tomas Sykora, an analyst at Patria Finance in Prague. "It must be a challenge."

Pricing remains the key variable. Ekmark said coking coal prices have fallen $10 a tonne since OKD pre-sold its output. The price of thermal coal - which represents around half of production by volume - has fallen by €2 a tonne to €52 this year. That leaves OKD selling at a loss.

Longer term, NWR is putting a lot of hope in the Debiensko project. The deposit in Polish Silesia has estimated reserves of 186mt, but would require €800mn of investment before it could start production in around a decade. "We are not in a position to raise that kind of money," says Ekmark. Instead, NWR is looking for a partner to invest €30mn in a feasibility study.

Ekmark adds that OKD is considering using "room and pillar" mining techniques to maximise its reserves in Czech Silesia. It also estimates another 4mt-5mt of coal could be added to its 54mt of reserves by excavating in old workings.

The company also hopes to raise the selling price of its coking coal by blending it with US imports.  Jelinek says trial shipments will start this year adding that "if these work, we want to grow it to become a significant part of our business". He suggests the scheme "has huge potential".