UK COAL PLC Interim Report for the Period Ended 30 June 2008 Interim Report 2 0 0 8

UK COAL PLC Interim Report for the period ended 30 June 2008 Interim Report 2 0 0 8

MINING AND POWER

HARWORTH ESTATES BRITAIN’S BIGGEST PRODUCER OF COAL, UK COAL SUPPLIES AROUND 15% OF ALL THE COAL BURNED IN THE COUNTRY, WHICH IS EQUIVALENT TO THE ENERGY NEEDED TO PROVIDE AROUND 5% OF THE COUNTRY’S ELECTRICITY REQUIREMENTS.

ONE OF BRITAIN’S LARGEST BROWNFIELD SITE PROPERTY DEVELOPERS, UK COAL OWNS A SUBSTANTIAL LAND PORTFOLIO, WHICH HAS MAJOR POTENTIAL FOR REDEVELOPMENT.

MINING AND POWER

DEEP MINING The Group operates 4 deep mines, located in Central and Northern England. The Group has reserves and resources of over 100 million tonnes at these mines. SURFACE MINING At 30 June 2008, the Group had 5 active surface mines and planning consent to mine a further site. The Group has applied for planning consents for a further 5 mines and expects to make applications for a further 4 sites during 2008. Total surface mining reserves available for planning are estimated at approximately 97 million tonnes. MINES METHANE UK COAL has 29 MW of electrical power generation capacity, utilising waste gas from mines. WIND POWER UK COAL is actively pursuing the development of alternative power generation opportunities, including wind farms, and has recently acquired planning consent for its first 9 MW wind farm.

UK COAL owns some 46,500 acres (18,818 hectares) of predominantly agricultural land. Within this, some 3,696 net acres have been identified as offering prime prospects for development into a mix of residential, business park, distribution and community developments over the medium to longer term.

At 30 June 2008, the Group’s property interests, excluding the deep mine sites, had a current open market value of £438 million.

HARWORTH ESTATES DAW MILL’S LONGWALL COAL FACE - ON TARGET FOR A RECORD ANNUAL OUTPUT. CONTENTS

Highlights 1 Chairman’s Statement 2

Operating and Financial Review (OFR) Safety 6 Mining and Power 9 Deep mines 10 Surface mines 11 Harworth Power 11 Harworth Estates 13 Financial review 16

Principal risks and uncertainties 17 Responsibility statement of the Directors 17 Independent review report 18 Consolidated income statement 19 Consolidated statement Maidens Hall of recognised income and expense 20 Steadsburn North Stobswood Consolidated balance sheet 21 Consolidated cash flow statement 22 Newcastle Notes to the condensed consolidated interim financial statements 23

York MINING AND POWER Leeds Kellingley Sharlston Manchester Cutacre Sheffield

Welbeck Thoresby

Lodge House Nottingham

Long Moor

Leicester Daw Mill

Birmingham Coventry

Ellington

Newcastle

York

Leeds Riccall Whitemoor Gascoigne Wood Prince of Wales Manchester Gawber Yorkshire Main Sheffield Rossington Harworth Waverley/Orgreave

Bilsthorthe HARWORTH ESTATES Chatterley Bennerley Nottingham Asfordby Tetron Point Lounge Mid Cannock South Leicester

Leicester

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UK COAL PLC Interim Report for the half year ended 30 June 2008

HIGHLIGHTS

H1 H1 Full Year Income Statement 2008 2007 2007 Revenue (£m) 172.9 146.2 328.5 Group (loss)/profit before non-trading exceptional items and finance costs (£m) (3.6) 35.8 72.6 (Loss)/profit before tax (£m) (9.9) 40.6 69.0 (Loss)/earnings per share (pence) (6.5) 34.2 59.9 (Loss)/earnings per share excluding deferred tax (pence) (6.5) 25.9 44.0 June Dec Balance sheet 2008 2007 Net assets (£m) 319.8 358.2 Net assets per share (£) 2.04 2.28 Net debt excluding restricted funds 145.3 104.3

Key performance Coal mined Operating costs before Operating loss before indicators depreciation and non-trading exceptional exceptional items items Deep Mines 2.8 million tonnes £137.9m £(25.7)m

Key performance Coal mined Operating costs before Operating loss before indicators depreciation and exceptional non-trading exceptional items per gigajoule items Surface Mines 0.9 million tonnes £1.52/GJ £(0.6)m

Key performance Coal mined Coal sales indicators Price per gigajoule Mining 3.7 million tonnes £1.79/GJ

Key performance Power generated Proportion of deep mines’ Operating profit before indicators electricity requirements exceptional items generated Mines Methane 84,193 MWh 60% £1.5m

Key performance RICS valuation of Other income less Net gains from indicators property portfolio expenses investment properties

Harworth £438.4m £0.6m £19.9m Estates

Like-for-like increase in RICS Gross acreage held valuation of property portfolio

5.3% 46,500 acres

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CHAIRMAN’S STATEMENT

RESULTS OVERVIEW These results show the robustness of UK COAL’s growth platform and place us on track to meet full year expectations. They also demonstrate the changing financial profile of our business as higher coal prices now start to deliver increased cash flows and we progressively reduce the proportion of our production needed to fulfil low-priced, legacy contracts.

We lay primary emphasis upon safety, and I am pleased to say we have made good progress in reinforcing the safety culture of our Group. We are especially pleased with a reduction in the major injury/fatality accident rate in the deep mines from 3.3 per DAVID JONES 100,000 manshifts in 2007 to 1.7. On behalf of the Board I Chairman would like to thank all of our employees for their dedication, not just on safety matters, but for the progress made within our operations. We are very fortunate in having a very skilled workforce with tremendous belief in our businesses.

Group revenue has increased 18.3% to £172.9 million during These results demonstrate the first half of the year, reflecting the higher average realised coal sales price, which rose 17.8% to £1.79 per gigajoule (GJ) “the changing financial profile of compared with £1.52/GJ for the same period in 2007.

In mining, our first half output was proportionately more our business as higher coal prices committed to satisfying older contracts, muting the positive impact of the increased market price for coal. In addition, first now start to deliver increased half production was constrained and was marginally lower than original expectations, principally reflecting the timing of face cash flows. changes at Kellingley and Welbeck. For the second half, while there may always be unpredictabilities, we expect significantly higher production at a significantly higher sales price. ” Our surface mines performed well, increasing production in the first half by 28.5% to 0.9 million tonnes (H1 2007: 0.7 million tonnes).

While the increased market value of coal is highly positive to the business, cost inflation, in particular in other fuel and steel prices, is affecting our businesses. Diesel fuel is a significant element of surface mine operating costs and overall performance in the period was affected by increases in its cost. The sharp increase and long term outlook for the price of “red diesel” has also led us to review the provisions required for the restoration of surface mine sites over the next 3-5 years, and for us to make an exceptional charge to the income statement of £5.6 million.

In our property business, Harworth Estates, we are differentiated from others in the sector as our property portfolio is at an early stage in its development life, with milestone planning gains, some rental appreciation and the good performance of agricultural land values in the period more than offsetting We were pleased to receive planning approval from the Local current general property market conditions. Longer term, we Authority Planning Committee for the first phase of the Prince believe that the UK’s structural shortage of land for of Wales project in August. development benefits our estate and that the locations of our brownfield sites fit well with both local and national Reflecting the lower scale of property valuation gains and the government’s vision of sustainable communities. surface mines restoration provision, the Group made an operating loss before non-trading exceptional items of £4.2 Harworth Estates performed well in the tough conditions for the million in the first half of the year compared to profit of £35.5 property market as a whole, achieving a 5% like-for-like increase million in the same period in 2007. in RICS property valuations since the end of 2007 to £438.4 million. While last year’s rate of increase in valuations could not The Group loss before tax in the first half of the year was £9.9 be maintained, it is notable that, despite difficult market million (H1 2007: profit before tax £40.6 million). Loss per share conditions for the property industry as a whole, our further was 6.5 pence (H1 2007: earnings per share 34.2 pence, or 25.9 progress in securing planning permissions and the strength of pence excluding the tax credit in the period). agricultural land values mean that we have achieved a modest While overall the reported result for the first half is lower than valuation increase in the first half of the year and expect to do for the same period last year, this is not unexpected bearing in so again in the second half.

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AROUND 95% OF UK COAL’S DEEP MINE OUTPUT IS DELIVERED TO POWER STATIONS BY LINER-TRAINS LIKE THIS BEING LOADED AT THORESBY COLLIERY IN NORTH NOTTS.

mind the scheduled timing of our mining production over this year and the unsurprisingly reduced level of non-cash property 5% of the country’s valuation gains achieved for the first half of 2008 given the current property environment. Net assets on the balance sheet were £319.8 million compared electricity is to £358.2 million at the end of 2007, primarily a result of a £28.5 million increase in the Group’s pension schemes’ deficits to £101.7 million. This increase mainly reflects a reduction in the market value of the schemes’ assets of £43.5 million, partially generated from offset by an actuarial gain of £12.5 million resulting from an increase in the interest rate used to discount the liabilities, both reflecting market conditions at the end of June 2008. our coal Overall net debt (excluding restricted cash balances) at 30 June 2008 was in line with expectations at £145.3 million (December 2007: £104.3 million).

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AN ILLUSTRATION OF THE DEVELOPMENT PLANNED FOR THE FORMER PRINCE OF WALES COLLIERY SITE AT PONTEFRACT, APPROVED BY WAKEFIELD COUNCIL. OVER 900 NEW HOMES, A BUSINESS PARK AND RETAIL OUTLETS WILL BE DEVELOPED ON THE 300-ACRE SITE.

ACTUAL NW EUROPE SPOT STEAM COAL PRICE IN $/TONNE, WITH FORWARD PRICES Actual 250 Latest Forward Forward June 2008

200 Forward March 2008 Forward December 2007 Forward September 2007 150 $/t 100 Source:API#2 — McCloskey Group/ TFS Brokers Basis: <1%S, CIF NW Europe, 6000 50 Kcal / Kg NAR (25.122 GJ/Tonne) Latest Forward Prices based on 0 information as at 30 July 2008 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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DIVIDEND The Group is making significant investments in its businesses to take advantage of opportunities to maximise shareholder value. For this reason and to preserve financial flexibility, the Board is not declaring an interim dividend.

OUTLOOK In our deep mines, Daw Mill is working through its two year long panel and, while Kellingley and Thoresby continue to face difficult coal conditions as they work their way through the last of their current seams, the investment programmes are well on track to enable access to their further substantial reserves from mid and late 2009 respectively. Welbeck will continue to mine its remaining resources until these are exhausted at the end of 2009. We have also begun the geological work to enable us to decide on the economic viability of re-opening our Harworth mine.

The sharp increase in the market price of coal, up around 45% from the start of the year to the end of July, and the strong forward price curve, transforms the outlook for our mining operations. For the second half, we expect to achieve both a significantly higher average sales price and, absent any disruption, a significantly higher volume of production, delivering strong positive cash flows. While we expect the difficulties in the commercial and residential property market to continue, we also expect to achieve a further modest increase in RICS property valuations in the second half.

Longer term, the proportion of our coal production needed to meet legacy contract commitments will now progressively fall, and we have made good progress in putting in place a balance of new contracts at floating, capped and collared and fixed prices, leaving a proportion of our production available to take advantage of short term market prices. This will progressively move our overall sales prices closer to world market price and is changing the economics of our mining business.

In property, it will take time for the current difficult market conditions to work through but we believe the longer term outlook, with the UK’s structural shortage of land for development, remains positive. We also believe we are well positioned given the strength of agricultural land values, the impact of the planning permissions we are pursuing, the location of our development sites and the timing of the construction phase, the latter not being significant until after the end of 2009.

Overall, we have made further good progress in realising the substantial potential of the Group. We continue to be UK COAL is confident of meeting expectations for the full year and view the future with optimism. one of Britain’s DAVID JONES Chairman largest 27 August 2008 brownfield site property developers 5

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OPERATING REVIEW

SAFETY

Safety in all aspects of the Group’s operations remains key and we are pleased to have made good progress in reinforcing the safety culture across the Group.

We continue to reinforce our links with the Health and Safety Executive through industry liaison committees on both surface and deep mines. Direct liaison between all unions, management and mines inspectors has been carried out collaboratively as well JON LLOYD Chief Executive as individually at senior levels, at all sites within the deep mine sector.

A significant improvement has been made in respect of safety in the deep mine operations where a major injury/fatality accident Safety in all aspects of the rate of 1.7 per 100,000 manshifts was achieved in the first six months of 2008, compared to 3.3 in 2007. Overall the major “Group’s operations remains key and injury/fatality accident rate in first half was 3.0 per 100,000 manshifts, a similar level to 2007, although the severity of we are pleased to have made good accidents has diminished. The Group’s rate for accidents reported under RIDDOR in the first half was 25.9 per 100,000 progress in reinforcing the safety manshifts, compared to 23.9 in 2007. culture across the Group.”

CCTV CAMERAS ARE BEING INSTALLED ON FREE-STEERED VEHICLES OPERATING AT UK COAL’S UNDERGROUND MINES TO GIVE DRIVERS A BETTER VIEW OF RESTRICTED AREAS.

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UNDERMANAGER RICHARD HUGHES AND SALVAGE CHARGEHAND RICHARD MERRICK WINCH OUT A CARPET OF MESH DESIGNED TO IMPROVE SAFETY WHILST RECOVERING EQUIPMENT FROM 31S’ SALVAGE DISTRICT AT DAW MILL COLLIERY.

More than a third of Britain’s electricity is generated from coal every year

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DRIVER TOMMY SIMM AT THE CONTROLS OF THE HEADING MACHINE USED TO OPEN UP AROUND 18 MILLION TONNES OF BEESTON SEAM RESERVES AT KELLINGLEY COLLIERY.

“We believe the pricing environment looking forward will remain strong.”

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UK COAL PLC Interim Report for the half year ended 30 June 2008

OPERATING REVIEW MINING AND POWER

COAL MARKET The coal market has continued to perform strongly during 2008, notwithstanding recent market corrections, with a further sharp increase in the world coal price, following its almost doubling in 2007. As with all commodities, the price of coal is a balance between increasing world demand (2007 up around 3% compared to 2006) against both the supply of mineable reserves and, perhaps more pertinently, logistical difficulties and the costs of getting coal into the appropriate market. Overall, we believe the pricing environment looking forward will remain strong, and that it is unlikely that there will be a major downward shift in the near term in the price of energy generally and of coal in particular.

COAL SALES Demand for our core product remains strong, not least because, given the high price of gas, coal burn for electricity generators in the UK market remains more profitable than gas, leaving aside the security of supply issues which were reflected in the difficulties encountered over the last winter in the UK obtaining imported gas supplies.

Although a significant portion of our coal production is still contracted, generally under old fixed price contracts, a small portion of our production for the first half has been available for sale at market prices, at times realising in excess of £4.00/GJ. As a consequence, the realised price for all sales in the first half was £1.79/GJ, up 10.5% over the price realised for the whole of 2007 of £1.62/GJ, and up 17.8% over the price for the first half of 2007 of £1.52/GJ.

At 30 June 2008, we had 21 million tonnes of coal contracted to be sold, with 4.5 million – 5 million tonnes due for delivery in the remainder of 2008, 6 million – 7 million tonnes in 2009 and the balance in subsequent years.

Of our total commitments, 10.5 million tonnes is under older “legacy” contracts at an average (fixed or capped) price of circa £1.55/GJ. The balance of the 21 million tonnes contains fixed, capped and floating rate commitments.

MINERS AT THORESBY COLLIERY CELEBRATE THE START OF WORK ON A PROJECT TO OPEN UP CIRCA 12 MILLION TONNES OF NEW RESERVES WHICH WILL EXTEND THE LIFE OF THE NORTH NOTTINGHAMSHIRE MINE FOR ABOUT A DECADE.

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OPERATING REVIEW CONTINUED MINING AND POWER Sources of Coal for UK Electricity 2007

There will be a significant reduction over the next 18 months in 16% 15% the amount of this “legacy” contracted coal, with some 7 million tonnes due for delivery by the end of 2009. Providing the ■ UK COAL 6% coal price remains strong, this will have a marked effect on the ■ Russia profitability and cash flows of the business. It is noteworthy that ■ Colombia this reduction in legacy contracted coal will also coincide with ■ South Africa an improvement in the expected production at Kellingley and ■ Other imports 16% Thoresby as we start to mine their new reserves in the Beeston ■ Other indigenous 39% and Deep Soft seams respectively, although the closure of 8% Welbeck will also take place over this period.

In the short term, we have indicated our expectation for the second half of 2008 of an overall realised sales price of between Source: DBERR Energy Statistics: 2007 £1.95 to £2.00/GJ, based upon a market price for the half of approximately $175/tonne (circa £3.50/GJ at an illustrative $2:£1) and production of approximately 5 million tonnes. This this has resulted in a face gap which lasted until 16 August would give an overall realised sales price for the full year of 2008. This was disappointing, especially given that production £1.90 to £1.95/GJ. Given the contractual commitments for rates on the old face had actually been in advance of our 2009, and assuming no significant change in market conditions, expectations. we would expect this to rise to over £2.10/GJ for that year. Daw Mill is now set well, exploiting the current panel, which The seasonality of sales volumes is not particularly marked, with contained over 6 million tonnes at the start of 2008, and will sales being driven by the timing of production faces rather than continue through until the end of 2009. Thoresby which, along customer demand. In contractual terms, the delivery under with Kellingley, is working its way through some very difficult older contracts tends to be more focussed in the earlier part of coal until it can reach its new reserves, had a good first half the year, although other deliveries and spot sales may obviate given the resources available to be mined. this in any given period. The developments to extend the lives of Kellingley and Thoresby DEEP MINES are both progressing well and are on target for production from Colliery performance summary the new reserves in line with our expectations of mid and late Operating Operating 2009 respectively. Production Production cost* cost* Welbeck had a slightly disappointing first half of the year with (m tonnes) (m tonnes) (£m) (£m) production of 0.4 million tonnes, below the first half of 2007 H1 2008 H1 2007 H1 2008 H1 2007 (0.6 million tonnes). This is a result of a delay in the start date Ongoing for the new face in the aftermath of the previously reported deep mines fatality at the mine last year. Daw Mill 1.6 1.2 42.4 33.0 Kellingley 0.5 0.8 35.1 35.0 At Harworth, we have begun seismic studies to assess the Thoresby 0.3 0.6 32.9 28.8 quality and extent of the reserves in the Top Hard seam that we Welbeck 0.4 0.6 25.9 22.1 are considering accessing. Bore holes will be sunk in the second Total half of the year, once planning consent is obtained for the ongoing drilling operations. It is intended that these feasibility studies will deep mines 2.8 3.2 136.3 118.9 be completed in order to make a decision in early 2009 as to Closed/sold whether to re-open Harworth. deep mines — 0.1 — 8.3 As expected, overall operating costs in the business have risen Total reflecting the impact of above RPI inflation increases being felt deep mines 2.8 3.3 136.3 127.2 especially in steel and other material prices, with increased * Operating cost before non-trading exceptional items and working hours, especially at Daw Mill, also contributing to depreciation costs, with central costs absorbed. the rise.

Overall the deep mines generally met our expectations in the period, with the exception of Kellingley where unexpectedly difficult geological conditions were encountered in the development of the final 900 metres of one of the two gates for the new panel. As a consequence, the roof had to be supported with steel arches for over 500 metres, instead of using the more conventional and significantly faster roof bolting technique and

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PRODUCTION FROM SURFACE MINE SITES LIKE THIS, LONG MOOR IN LEICESTERSHIRE, IS UP 28.5% ON THE CORRESPONDING PERIOD LAST YEAR.

SURFACE MINES As we believe that we have seen a more permanent shift in the H1 2008 H1 2007 cost of energy, notwithstanding some recent market corrections, Production (m tonnes) 0.9 0.7 we have reviewed upwards the provisions required to restore the Cost before depreciation (£m) 31.6 15.5 mine sites at the end of their operating lives to reflect the diesel Cost per gigajoule before cost component of these provisions, resulting in an exceptional depreciation (£/GJ) 1.52 1.07 charge to the income statement of £5.6 million in the period. Additional provision re fuel increases (£m) 5.6 — HARWORTH POWER Total cost before We generated 84,193 MWh (H1 2007: 80,356 MWh) of electricity depreciation (£m) 37.2 15.5 from mines methane pumped from both operational and closed deep mines. This is enough to power around 37,000 homes, and Surface mines had a good first half, meeting expectations with equivalent to about 60% of the deep mines’ electricity production up 28.5% at 0.9 million tonnes (H1 2007: 0.7 requirements in the period. Our generating station at the former million tonnes). Production has progressed well at sites Stillingfleet deep mine, which was commissioned in 2007, has successfully opened in the second half of 2007 at Steadsburn, consistently generated at over 90% utilisation, although output at Long Moor and Sharlston. the operating mines was more variable as the methane released Planning delays continue to frustrate the development of the from mining operations varies with activity levels. business although this has not impacted on production this year. We are continuing with the lengthy process of gaining planning In particular delays on the new Park Wall site have resulted in permissions for wind farms to be built on a number of our sites. the deferral of that scheme which was previously expected to Currently we have consent for a 9 MW wind farm at start in 2008, although the production shortfall in 2008 will be Lynemouth, Northumberland, and are seeking to fulfil planning made up from other sites. conditions on this. We have applications for a further 16 MW in Operating costs, before depreciation (but after amortisation of the planning system, and we are undertaking planning restoration provisions), in the first half at £1.52/GJ were at the applications and studies at a number of other sites. top end of our expectations, reflecting most notably an increase in the cost of “red diesel” from 47 pence per litre at the start of the period to 66 pence at the end of June 2008, although this has subsequently fallen back to circa 60 pence.

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PLANS FOR A NEW COMMUNITY OF AROUND 4,000 HOMES AND ASSOCIATED INFRASTRUCTURE ON UK COAL’S FORMER WAVERLEY SURFACE MINE SITE BETWEEN ROTHERHAM AND SHEFFIELD ARE NOW BEING CONSIDERED. ROTHERHAM COUNCIL SUPPORTS THE PRINCIPLE OF DEVELOPMENT AT THE SITE, WITH AN ADVANCED MANUFACTURING PARK ALREADY BEING DEVELOPED AND ATTRACTING INCREASING INTEREST FROM HIGH-TECH COMPANIES.

“We are differentiated from most of our property peer groups as our land portfolio is at an early stage in its development life and also contains a significant agricultural element.”

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UK COAL PLC Interim Report for the half year ended 30 June 2008

OPERATING REVIEW HARWORTH ESTATES

The first half of 2008 has been the most difficult period for the property industry since 1990. Notwithstanding this, our property business has delivered profits in the first half of the year of £20.5 million (December 2007: £54.0 million) including investment property valuation gains of £19.8 million (December 2007: £51.0 million).

Although we are certainly not immune from the market, we believe that we are differentiated from most of our property peer groups as our land portfolio is at an early stage in its development life and also contains a significant agricultural element. For these reasons, the RICS valuation, produced by external valuers, of our property portfolio increased from £410.7 million at the end of 2007 to £438.4 million at 30 June 2008. After allowing for purchases, depreciation and development spend, the net gain in the first half of the year on a like-for-like basis was 5%.

We have not, for this half year, undertaken a review of our Project Worth estimates which will be done at the end of the full year.

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OPERATING REVIEW CONTINUED HARWORTH ESTATES

PORTFOLIO RICS VALUATION AS AT 30 JUNE 2008 from a land assembly perspective, a key differentiator for us in Valuation summary by classification the Eco-town contest. Successful sites will be awarded special June 08 Dec 07 Like-for-like planning status in the first quarter of 2009. £m £m % change* In the period we have continued to promote several major Business Parks 60.4 53.3 10% planning applications including particularly the joint venture Commercial with project, G-Park at Lounge, Ashby de la Zouch, (850,000 sqft planning 30.6 28.0 8% with Gazeley) and at Coalville (589,000 sqft joint venture with Other commercial Graftongate Developments). and residential 235.7 224.7 3% Agricultural 111.7 104.7 7% Whilst our planning consent for a major rail-related business Total 438.4 410.7 5% park at Gascoigne Wood in North Yorkshire has been challenged in the courts, the Secretary of State (and Harworth Estates) had * The like-for-like percentage change and December 2007 the consent confirmed at High Court in May this year. Although comparatives are after property reclassifications and take into the third party challenging the decision has sought leave to refer account adjustments for asset sales and development that decision to the Court of Appeal, we believe that this expenditure. challenge will not be sustained. Gascoigne Wood can deliver a In July we received confirmation that several of our residential major community regeneration and job creating project for the schemes in Project Worth now sit in areas confirmed as Housing Selby area and development there has all party support from the Growth Points under the latest Government plans for meeting Local Authority. demand for additional new homes over the next decade. As a At Cutacre, Bolton, our major premium business park proposal, result, we will make a stronger case for increased housing on part of the current surface mining project, has been numbers on our various mixed use projects in the North East, identified as the Council’s Preferred Option for its employment West and South Yorkshire and the East Midlands. site in the Local Development Framework. Over the past six months we have continued the promotion of At the turn of the half year, we submitted the planning our Eco-town project at Rossington, Doncaster and have had application for a community of approximately 3,900 new homes several meetings with Government, its Eco-town Challenge at Waverley in Rotherham (an area now designated by Panel and, most recently, on site with the Housing Minister. The Government as a Housing Growth Point) and we will shortly be project now consists of 5,000 homes, 3,500 of which are on our submitting an application for the adjoining circa 650,000 sqft own brownfield land, the former pithead of Rossington Colliery. Helical Governetz joint venture scheme, providing Government The balance is on adjoining previously developed land in single with environmentally sound and cost effective relocation offices. third party ownership, making our ability to deliver this project,

ONE OF THE LATEST NEW JOINT VENTURE DEVELOPMENTS ON THE ADVANCED MANUFACTURING PARK AT WAVERLEY BETWEEN ROTHERHAM AND SHEFFIELD.

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UK COAL CHIEF EXECUTIVE JON LLOYD OUTLINES THE CONCEPT OF THE ROSSINGTON ECOTOWN PROJECT TO COMMUNITIES MINISTER IAIN WRIGHT. IF THE SCHEME IS APPROVED, AROUND 5,000 NEW HOMES COULD BE BUILT ON PREVIOUSLY DEVELOPED LAND AT THE FORMER COLLIERY SITE.

Harworth Estates currently owns in excess of 46,500 acres of land

At the Prince of Wales Colliery, Pontefract, our scheme to We will continue to report on the progress of the RICS valuation provide initially 913 houses and 250,000 sqft of employment on a half yearly basis and the management estimate of Project space, has received approval from the Planning Committee of Worth on an annual basis. Notwithstanding the current market Wakefield Council and will now be referred to the Government turbulence, we continue to believe both these measures are Office for Yorkshire to confirm that the Council can proceed to likely to increase in the medium term as planning milestones are issue the planning consent. achieved.

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FINANCIAL REVIEW

TAXATION Corporation tax of £309,000 (H1 2007: £nil) has been charged in respect of the power generation business: the taxable profits of part of this business not being allowed to be offset against other losses. There have been no further tax charges or credits during the period due to the availability of substantial brought forward tax losses for offset against profits expected in the second half year.

There have been no movements in respect of deferred tax in the period (H1 2007: £13.0 million credit) DAVID BROCKSOM Finance Director RETIREMENT BENEFIT OBLIGATIONS The Group’s defined benefit obligations comprise two funded Industry Wide Schemes and an unfunded concessionary fuel PROFIT PERFORMANCE scheme. A review of the profit performance of the individual businesses is contained in the Operating Review and further detailed The Industry Wide Schemes have a combined deficit of £78.0 disclosures are contained in the financial statements million (30 June 2007: £57.7 million; 31 December 2007: £49.8 accompanying this report. million) on these schemes, which are closed to new entrants but are required to be open for future service. The deficit has FINANCE COSTS increased over the first half by £28.2 million, primarily as a result Group net finance costs were £5.4 million (H1 2007: £4.8 of a fall of £42.8 million in the fund value as compared to the million) including the non-cash cost for the unwinding of expected return, partially offset by an increase in the rate used discounts on provisions of £2.0 million (H1 2007: £2.0 million), to discount the liabilities of the scheme, which reduced the and a credit in respect of the mark to market gain on our scheme liabilities by £12.3 million. During the first half there interest rate hedges of £2.1 million (H1 2007: £0.9 million). The were payments to the scheme, in excess of current service costs, increase in net finance costs reflects the general increase in the of £2.3 million. level of net debt of the Group. The overall post service obligations also include an unfunded liability in respect of the concessionary fuel scheme of £23.7 We have started to apply hedge accounting on our interest rate million (30 June 2007: £22.0 million; 31 December 2007: swaps progressively during the first half of the year once this has £23.4 million). been possible on a case by case basis. The need to revalue Concessionary individual hedges, up to the date when hedge accounting could Pension fuel Total be implemented and in respect of others where this has not £m £m £m been possible, has resulted in a mark to market gain of £2.1 1 January 2008 (49.8) (23.4) (73.2) million in the income statement. A credit to reserves of £0.5 Change in fund value million was made in respect of movements in the market value compared to expected of individual hedges from the dates when hedge accounting was return (42.8) (0.7) (43.5) implemented. Actuarial gains in respect of liabilities 12.3 0.2 12.5 JOINT VENTURES Contributions paid less Coal4Energy, our joint venture with Hargreaves Services PLC, current service cost 2.3 0.2 2.5 earned profits of £0.6 million in the first half of the year 30 June 2008 (78.0) (23.7) (101.7) (H1 2007: £0.3 million).

We have also entered into a new joint venture, UK Strategic Partnership, with Strategic Sites Limited, which has acquired a DAVID BROCKSOM small parcel of land at the Waverley AMP site, for development. Finance Director 27 August 2008

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PRINCIPAL RISKS AND UNCERTAINTIES

UK COAL PLC operates in an industry which carries inherent risk, and is subject to market and other external risks which cannot be fully controlled, mitigated or insured against.

The principal risks and uncertainties identified by the Directors which exist within the Group remain those disclosed on pages 36 and 37 in the Annual Report and Accounts for the Group for the year ended 31 December 2007.

The key risks fall into the following categories: Mining risks: — Health, safety and environment — Major unforeseeable production shortfalls or geological constraints — Fluctuations in coal prices

Property risks: — Property market downturn or volatility — Planning approvals

The Outlook section of the Chairman’s statement provides commentary concerning the remainder of the financial year.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF YEARLY FINANCIAL REPORT

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

— an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

— material related parties transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of UK COAL PLC are listed in the UK COAL PLC Annual Report for 31 December 2007. A list of current Directors is maintained on the UK COAL PLC website: www.ukcoal.com

By order of the Board

JON LLOYD DAVID BROCKSOM Chief Executive Finance Director 27 August 2008 27 August 2008

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INDEPENDENT REVIEW REPORT TO UK COAL PLC

INTRODUCTION We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008, which comprises the consolidated income statement, the consolidated statement of recognised income and expense, the consolidated balance sheet, the consolidated cash flow statement and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

DIRECTORS’ RESPONSIBILITIES The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom’s Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting”, as adopted by the European Union.

OUR RESPONSIBILITY Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

SCOPE OF REVIEW We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom’s Financial Services Authority.

PRICEWATERHOUSECOOPERS LLP Chartered Accountants East Midlands 27 August 2008

NOTES: (a) The maintenance and integrity of the UK COAL PLC website is the responsibility of the Directors; the work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2008

Unaudited Unaudited Audited 6 months 6 months 12 months to June to June to December 2008 2007 2007 Notes £000 £000 £000 Revenue 2 172,854 146,167 328,485 Cost of sales (193,814) (164,285) (319,218) Gross (loss)/profit (20,960) (18,118) 9,267

Net appreciation in fair value of investment properties 19,828 51,043 66,799 Profit on disposal of investment properties 62 889 3,688 Gains on investment properties 19,890 51,932 70,487 Profit on sale of business — 12,227 8,481 Other operating income and expenses (4,052) (962) (5,579) Operating (loss)/profit 2 (5,122) 45,079 82,656 Finance costs 3 (6,749) (6,234) (17,121) Finance income 3 1,349 1,391 2,951 Finance costs — net 3 (5,400) (4,843) (14,170) Share of post-tax profit from joint ventures 623 337 537 (Loss)/profit before tax (9,899) 40,573 69,023 Tax 4 (309) 12,994 25,000 (Loss)/profit for the period 13 (10,208) 53,567 94,023

Attributable to: Equity holders of the Company (10,208) 53,567 94,023 (Loss)/earnings per share pence pence pence Basic and diluted 6 (6.5) 34.2 59.9

The notes on pages 23 to 33 are an integral part of the condensed consolidated interim financial statements.

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CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30 June 2008

Unaudited Unaudited Audited 6 months 6 months 12 months to June to June to December 2008 2007 2007 £000 £000 £000 Actuarial (loss)/gain on Industry Wide schemes (30,971) 35,569 35,733 Actuarial gain on Blenkinsopp pension scheme 58 — 464 Actuarial gain on concessionary fuel reserve 174 2,294 1,280 Movement on deferred tax asset relating to retirement benefit liabilities — (12,986) (22,012) Impact of change in UK tax rate on deferred tax — — (2,383) Property revaluation on transfer to investment properties 1,747 1,231 6,733 Cash flow hedges 492 — — Net (loss)/gain recognised directly in equity (28,500) 26,108 19,815 (Loss)/profit for the period (10,208) 53,567 94,023 Total recognised (expense)/income for the period (38,708) 79,675 113,838

Attributable to: Equity holders of the Company (38,708) 79,675 113,838

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CONSOLIDATED BALANCE SHEET At 30 June 2008

Unaudited Unaudited Audited 30 June 30 June 31 December 2008 2007 2007 Notes £000 £000 £000 ASSETS Non current assets Operating property, plant and equipment 190,963 210,443 199,551 Surface mine development and restoration assets 31,065 16,664 20,111 Total operating property, plant and equipment 7 222,028 227,107 219,662 Investment properties 8 413,877 360,560 384,291 Investment in joint ventures 14 1,869 142 342 Deferred tax asset 36,000 35,747 36,000 Trade and other receivables 1,615 964 1,613 675,389 624,520 641,908 Current assets Inventories 46,150 43,691 39,756 Trade and other receivables 41,453 37,666 29,953 Derivative financial instruments 928 1,467 424 Cash and cash equivalents 9 40,300 46,526 70,068 128,831 129,350 140,201 LIABILITIES Current liabilities Financial liabilities — Borrowings 10 (7,066) (32,532) (27,320) Trade and other payables (103,190) (100,195) (100,213) Provisions 11 (31,221) (35,360) (31,061) (141,477) (168,087) (158,594) Net current liabilities (12,646) (38,737) (18,393) Non current liabilities Financial liabilities — Borrowings 10 (141,148) (75,038) (97,921) — Derivative financial instruments (55) — (2,148) Trade and other payables (98) (231) (73) Deferred tax liability (815) (1,172) (815) Provisions 11 (99,174) (105,771) (91,141) Retirement benefit obligations 12 (101,678) (79,662) (73,171) (342,968) (261,874) (265,269) Net assets 319,775 323,909 358,246 EQUITY Capital and reserves Ordinary shares 1,571 1,569 1,571 Share premium 30,756 30,756 30,756 Revaluation reserve 143,893 140,873 143,014 Capital redemption reserve 257 257 257 Fair value reserve 197,746 162,413 177,851 Hedging reserve 492 — — Retained earnings 13 (54,940) (11,959) 4,797 Total equity 13 319,775 323,909 358,246

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CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June 2008

Unaudited Unaudited Audited 6 months 6 months 12 months to June to June to December 2008 2007 2007 Notes £000 £000 £000 Cash flows from operating activities (Loss)/profit for the period 2 (10,208) 53,567 94,023 Depreciation/impairment of operating property, plant and equipment 20,268 19,637 38,500 Amortisation of surface mine development and restoration assets 5,726 3,368 8,723 Net fair value appreciation in investment properties (19,828) (51,043) (66,799) Net interest payable and amortisation of discount on provisions 5,400 4,843 14,170 Net charge for share based remuneration 237 112 284 Share of post-tax profit from joint ventures (623) (337) (537) Profit on disposal of investment property (62) (889) (3,688) Profit on disposal of operating property, plant and equipment (15) (1,345) (1,598) Profit on sale of business — (12,227) (8,481) Capitalised surface mine restoration costs (11,269) (6,178) (14,490) Increase/(decrease) in provisions and retirement benefit obligations 3,983 (11,066) (38,818) Tax charge/(credit) 309 (12,994) (25,000) Operating cash flows before movements in working capital (6,082) (14,552) (3,711) Increase in stocks (6,394) (7,051) (3,116) (Increase)/decrease in receivables (11,502) 9,938 17,253 Increase/(decrease) in payables 2,693 (6,167) (4,304) Cash (used in)/generated from operations (21,285) (17,832) 6,122 Interest paid (6,140) (4,247) (13,188) Cash used in operating activities (27,425) (22,079) (7,066) Cash flows from investing activities Interest received 1,349 1,391 2,951 Net receipt from/(payment to) insurance and security provision funds 11,711 (2,475) (6,794) Net proceeds from sale of business — 21,500 21,500 Proceeds from disposal of fixed assets 909 5,279 14,122 Net (investment in)/receipts from joint ventures (904) 400 400 Development costs of investment properties (6,167) (2,579) (7,547) Pre-coaling expenditure for surface mines (5,411) (792) (4,650) Purchase of operating property, plant and equipment (14,356) (12,327) (23,046) Cash (used in)/generated from investing activities (12,869) 10,397 (3,064) Cash flows from financing activities Net drawdown of bank loans 27,152 12,552 27,223 Net (repayments)/proceeds of obligations under hire purchase and finance leases (4,915) (2,747) 253 Cash generated from financing activities 22,237 9,805 27,476 (Decrease)/increase in cash (18,057) (1,877) 17,346

At commencement of period Cash 20,973 3,627 3,627 Cash equivalents 49,095 42,301 42,301 70,068 45,928 45,928 (Decrease)/increase in cash equivalents (net receipt from insurance and subsidence security funds) (11,711) 2,475 6,794 (Decrease)/increase in cash (18,057) (1,877) 17,346 40,300 46,526 70,068 At end of period Cash 2,916 1,750 20,973 Cash equivalents 37,384 44,776 49,095 Cash and cash equivalents 9 40,300 46,526 70,068

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2008

1 BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS UK COAL PLC is a company domiciled in the UK. The condensed consolidated interim financial statements as at and for the six months ended 30 June 2008 comprise the Company and its subsidiaries (together referred to as the “Group”).

The Group financial statements for the year ended 31 December 2007 were approved by the Board of Directors on 17 April 2008 and delivered to the Registrar of Companies.

The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985.

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985.

These condensed consolidated interim financial statements for the period ended 30 June 2008 are unaudited but have been reviewed by the auditors and their Independent Review Report is included with these statements.

The Board approved the condensed consolidated interim financial statements on 27 August 2008.

Statement of compliance The condensed consolidated interim financial statements for the six months ended 30 June 2008 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union (“EU”). The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2007 which have been prepared in accordance with IFRSs as adopted by the EU.

Accounting policies Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2007, as described in those annual financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected annual earnings.

The following standard is effective for the first time in 2008:

IFRIC 14, ‘IAS 19 — The limit on a defined benefit asset, minimum funding requirements and their interaction’ (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Group has applied IFRIC 14 from 1 January 2008, but it has not had any impact on the Group’s accounts.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2008, but are not currently relevant to the Group:

— IFRIC 11 ‘IFRS 2 — Group and treasury share transactions’ — IFRIC 12 ‘Service concession arrangements’

Trading and non-trading exceptional items Items that are both material and non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the condensed consolidated interim financial statements are referred to as exceptional items and disclosed within their relevant income statement category. Items that may give rise to classification as exceptional items include, but are not limited to, significant and material restructuring closures and reorganisation programmes, asset impairments, and profits or losses on the disposal of businesses.

Exceptional items are divided into non-trading and trading exceptional items, depending upon the impact of the event giving rise to the cost or income on the ongoing trading operations and the nature of the costs or income involved. Non-trading exceptional items include costs and income arising from closure, rationalisation and business disposals.

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued For the six months ended 30 June 2008

1 BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued Property related transactions, including changes in the fair value of investment properties, and profits and losses arising on the disposal of property assets are not included in the definition of exceptional items as they are expected to recur, but are separately disclosed on the face of the consolidated income statement, where material.

Going concern In forming its opinion as to going concern, the Board prepares a working capital forecast based upon its assumptions as to trading as well as taking into account the available borrowing facilities in line with the Treasury Policy disclosed in the Directors’ Report in the Group’s Annual Report and Accounts for the year ended 31 December 2007. The Board also prepares a number of alternative scenarios modelling the business variables and key risks and uncertainties, both as summarised in the Operating and Financial Review within the Annual Report and Accounts.

Based upon these, the Board has concluded that the Group has adequate working capital and has therefore concluded that it is appropriate to use the going concern basis of preparation for the condensed consolidated interim financial statements of the Group.

Estimates and judgements The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2007.

2 SEGMENTAL REPORTING Revenue Revenue from operations arises from: 6 months 6 months 12 months to June to June to December 2008 2007 2007 £000 £000 £000 Sale of goods 164,914 140,044 318,671 Rendering of services 5,354 3,622 5,037 Rental income 2,586 2,501 4,777 172,854 146,167 328,485

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2 SEGMENTAL REPORTING continued Primary reporting format — business segments Six months ended 30 June 2008 Closed/ Ongoing sold Deep Deep Deep Surface Mines Mines Mining Mining Power Property Other Total £000 £000 £000 £000 £000 £000 £000 £000 Continuing operations Revenue — gross 128,818 — 128,818 41,541 3,790 2,592 1,149 177,890 Revenue — intra Group — — — (3,625) (1,156) — (255) (5,036) Revenue 128,818 — 128,818 37,916 2,634 2,592 894 172,854 Operating (loss)/profit before non-trading exceptional items (25,682) — (25,682) (603) 1,476 20,452 195 (4,162) Non-trading exceptional items — Rationalisation, closure and other costs (347) (541) (888) (72) ———(960) Operating (loss)/profit after non-trading exceptional items (26,029) (541) (26,570) (675) 1,476 20,452 195 (5,122) Finance costs (6,749) Finance income 1,349 Finance costs — net (5,400) Share of post-tax profit from joint ventures 623 Loss before tax (9,899) Tax (309) Loss for the period (10,208)

Other segmental items Capital expenditure 12,267 — 12,267 1,199 2 7,055 — 20,523 Depreciation 18,188 — 18,188 1,338 650 81 11 20,268 Surface mines development costs and restoration assets capitalised — — — 16,680 — — — 16,680 Amortisation of surface mining development and restoration assets ——— 5,726 — — — 5,726 Provisions — non-cash charge 3,673 — 3,673 16,915 — — 23 20,611

Property operating profit includes the gains on investment properties of £19,890,000 being net appreciation in fair value of investment properties of £19,828,000 and profit on disposal of investment properties of £62,000.

Trading exceptional items Deep mines operating loss includes Coal Investment Aid income of £1,554,000. Surface mines operating loss includes a one-off charge of £5,574,000 to increase the surface mines restoration provision following a sharp increase in fuel prices.

All trading and non-trading exceptional items are included in cost of sales except for Coal Investment Aid which is included within other operating income and expenses.

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued For the six months ended 30 June 2008

2 SEGMENTAL REPORTING continued Six months ended 30 June 2007 Closed/ Ongoing sold Deep Deep Deep Surface Mines Mines Mining Mining Power Property Other Total £000 £000 £000 £000 £000 £000 £000 £000 Continuing operations Revenue — gross 112,668 7,345 120,013 25,517 3,939 2,522 721 152,712 Revenue — intra Group — — — (3,945) (2,392) — (208) (6,545) Revenue 112,668 7,345 120,013 21,572 1,547 2,522 513 146,167 Operating profit/(loss) before non-trading exceptional items (23,119) (1,600) (24,719) 4,491 1,714 54,000 (9) 35,477 Non-trading exceptional items — Profit on sale of business — 11,989 11,989 — 238 ——12,227 — Rationalisation, closure and other costs (1,470) (1,120) (2,590) (35) ———(2,625) Operating profit/(loss) after non-trading exceptional items (24,589) 9,269 (15,320) 4,456 1,952 54,000 (9) 45,079 Finance costs (6,234) Finance income 1,391 Finance costs — net (4,843) Share of post-tax profit from joint ventures 337 Profit before tax 40,573 Tax 12,994 Profit for the period 53,567

Other segmental items Capital expenditure 8,073 1,040 9,113 326 2,779 2,688 — 14,906 Depreciation 17,036 529 17,565 1,566 415 91 — 19,637 Surface mines development costs and restoration assets capitalised — — — 10,338 — — — 10,338 Amortisation of surface mining development and restoration assets — — — 3,368 — — — 3,368 Provisions — non-cash charge/(credit) 5,857 (6,724) (867) 9,103 — — 7 8,243

Property operating profit includes the gains on investment properties of £51,932,000 being net appreciation in fair value of investment properties of £51,043,000 and profit on disposal of investment properties of £889,000.

Trading exceptional items Deep mines operating loss includes Coal Investment Aid income of £1,460,000 and recovery costs for Daw Mill colliery of £11,005,000.

Non-trading exceptional items Rationalisation, closure and other costs are predominantly associated with the deep mines operations and include costs in respect of Harworth colliery of £1,120,000, redundancy costs of £1,924,000 and pension curtailment gains of £419,000. The profit on sale of business relates to the sale of Maltby colliery in February 2007.

All trading and non-trading exceptional items are included in cost of sales except for Coal Investment Aid which is included within other operating income and expenses.

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2 SEGMENTAL REPORTING continued Year ended 31 December 2007 Closed/ Ongoing sold Deep Deep Deep Surface Mines Mines Mining Mining Power Property Other Total £000 £000 £000 £000 £000 £000 £000 £000 Continuing operations Revenue — gross 258,404 7,375 265,779 60,399 8,575 4,803 1,286 340,842 Revenue — intra Group — — — (7,542) (4,430) — (385) (12,357) Revenue 258,404 7,375 265,779 52,857 4,145 4,803 901 328,485 Operating profit/(loss) before non-trading exceptional items (14,037) (600) (14,637) 8,543 4,333 73,200 694 72,133 Non-trading exceptional items — Profit on sale of business — 8,243 8,243 — 238 ——8,481 — Rationalisation, closure and other costs 4,078 (1,811) 2,267 (225) ———2,042 Operating profit/(loss) after non-trading exceptional items (9,959) 5,832 (4,127) 8,318 4,571 73,200 694 82,656 Finance costs (17,121) Finance income 2,951 Finance costs — net (14,170) Share of post-tax profit from joint ventures 537 Profit before tax 69,023 Tax 25,000 Profit for the year 94,023

Other segmental items Capital expenditure 16,374 1,040 17,414 1,447 3,422 8,116 194 30,593 Depreciation 33,664 529 34,193 3,079 1,056 172 — 38,500 Surface mines development costs and restoration assets capitalised — — — 19,140 — — — 19,140 Amortisation of surface mining development and restoration assets — — — 8,723 — — — 8,723 Provisions — non-cash charge/(credit) (245) (8,633) (8,878) 12,086 — — 17 3,225

Property operating profit includes the gains on investment properties of £70,487,000 being net appreciation in fair value of investment properties of £66,799,000 and profit on disposal of investment properties of £3,688,000.

Trading exceptional items Deep mines operating loss includes Coal Investment Aid income of £2,926,000 and recovery and related costs for Daw Mill colliery of £11,505,000.

Non-trading exceptional items The profit on sale of business relates to the sale of Maltby colliery in February 2007.

Rationalisation, closure and other costs are predominantly associated with the deep mines operations and include a net credit of £8,767,000 following settlement of a dispute on tax deductions arising on redundancies with HMRC, costs in respect of Harworth colliery of £1,811,000, redundancy costs of £3,065,000, write-down of stores equipment in connection with a strategic review on closure of deep mine operations of £1,737,000, pension curtailment gains of £668,000 and other costs of £780,000.

All trading and non-trading exceptional items are included in cost of sales except for Coal Investment Aid which is included within other operating income and expenses.

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued For the six months ended 30 June 2008

3 FINANCE INCOME AND COSTS 6 months 6 months 12 months to June to June to December 2008 2007 2007 £000 £000 £000 Interest expense — Bank borrowings (5,581) (3,757) (8,868) — Hire purchase agreements and finance leases (559) (466) (810) — Unwinding of discount on provisions (1,977) (1,987) (3,933) — Amortisation of issue costs of bank loans (736) (967) (1,610) Gain/(loss) on interest rate swaps not eligible for hedge accounting 2,104 943 (1,900) Finance costs (6,749) (6,234) (17,121) Finance income 1,349 1,391 2,951 Finance costs — net (5,400) (4,843) (14,170)

The Group has adopted hedge accounting for its interest rate swaps where possible for the first time during the period to 30 June 2008.

4 TAX The tax charge in the period of £309,000 relates to a charge on the profits of the power generation business. No tax payments have been made during the period.

5 DIVIDENDS No dividends have been paid or proposed in relation to 2007. No interim dividend is proposed for the six months ended 30 June 2008.

6 (LOSS)/EARNINGS PER SHARE (Loss)/earnings per share has been calculated by dividing the (loss)/earnings attributable to ordinary shareholders by the weighted average number of shares in issue and ranking for dividend during the year.

In calculating the diluted (loss)/earnings per share, the weighted average number of ordinary shares is adjusted for the diluting effect of share options potentially issuable under the Group’s employee share option plans.

6 months 6 months 12 months to June to June to December 2008 2007 2007 £000 £000 £000 (Loss)/profit before tax (9,899) 40,573 69,023 Corporation tax (309) — — (Loss)/profit before deferred tax (10,208) 40,573 69,023 Deferred tax — 12,994 25,000 (Loss)/profit for the year (10,208) 53,567 94,023

Weighted average number of shares used for basic and diluted (loss)/earnings per share calculations 157,128,220 156,673,616 156,839,338 Basic and diluted (loss)/earnings per share (pence) (6.5) 34.2 59.9

Adjusted loss per share, excluding deferred tax, for the six months ended 30 June 2008 is 6.5 pence (six months ended 30 June 2007: earnings per share 25.9 pence; year ended 31 December 2007: earnings per share 44.0 pence). This adjusted (loss)/earnings per share is stated to enable comparability to the previous period.

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7 OPERATING PROPERTY, PLANT AND EQUIPMENT Surface mine Operating development property and plant and restoration equipment assets Total Net book value £000 £000 £000 At 1 January 2007 228,248 9,694 237,942 Additions 12,327 10,338 22,665 Disposals (13,586) — (13,586) Net transfer from investment properties 3,091 — 3,091 Depreciation charge (19,637) (3,368) (23,005) At 30 June 2007 210,443 16,664 227,107 Additions 10,719 8,802 19,521 Disposals (48) — (48) Net transfer to investment properties (2,700) — (2,700) Depreciation charge (18,863) (5,355) (24,218) At 31 December 2007 199,551 20,111 219,662 Additions 14,356 16,680 31,036 Disposals (31) — (31) Net transfer to investment properties (2,645) — (2,645) Depreciation charge (20,268) (5,726) (25,994) At 30 June 2008 190,963 31,065 222,028

In addition to the above, the Group is commited to a further £7,900,000 of expenditure for operating property, plant and equipment.

8 INVESTMENT PROPERTIES 6 months 6 months 12 months to June to June to December 2008 2007 2007 At valuation £000 £000 £000 At 1 January 384,291 311,677 311,677 Additions 6,167 2,579 7,547 Disposals (801) (2,879) (8,074) Fair value uplift 19,828 51,043 66,799 Transfer from operating property, plant and equipment 2,645 8 1,256 Revaluation gain on transfer from operating property, plant and equipment 1,747 1,231 6,733 Transfer to operating property, plant and equipment — (3,099) (1,647) At period end 413,877 360,560 384,291

In addition to the above, the Group is commited to a further £1,300,000 of expenditure for investment properties.

All investment properties were valued at 30 June 2008, in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors, by three firms, Atisreal, Smiths Gore and Bell Ingram, all independent firms with relevant experience of valuations of this nature. The valuation excludes any deduction of rehabilitation and restoration costs which are stated within provisions in the balance sheet.

Key assumptions within the basis of fair value are:

— The sites will be cleared of redundant buildings, levelled and prepared ready for development — The values are on a basis that no material environmental contamination exists on the subject or adjoining sites, or where this is present the sites will be remediated to a standard consistent with the intended use, the costs for such remediation being separately provisioned — No deduction or adjustment has been made in relation to clawback provisions, or other taxes which may be payable in certain events

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued For the six months ended 30 June 2008

9 CASH AND CASH EQUIVALENTS 30 June 30 June 31 December 2008 2007 2007 £000 £000 £000 Cash deposited to cover insurance requirements 19,696 22,029 25,692 Subsidence security fund 17,688 22,747 23,403 Total “restricted” cash balances 37,384 44,776 49,095 Other cash balances 2,916 1,750 20,973 Cash and cash equivalents 40,300 46,526 70,068

10 FINANCIAL LIABILITIES — BORROWINGS 30 June 30 June 31 December 2008 2007 2007 £000 £000 £000 Current 7,066 32,532 27,320 Non-current 141,148 75,038 97,921 148,214 107,570 125,241

Debt at 30 June 2008 is stated after deduction of unamortised borrowing costs of £3,431,000 (30 June 2007: £2,381,000; 31 December 2007: £3,255,000).

During the period, the Group made repayments of £1,086,000 against borrowings. Additional facilities of £10,584,000 have been secured during the period. Of these, £4,584,000 has been through the increase of an existing facility and is repayable on expiry of the facility in February 2010. A further £6,000,000 was secured through an increase on the renegotiation/renewal of a former facility of £20,000,000, which was due to have expired in August 2008. Following renegotation the facility has been increased to £26,000,000 and the term extended to May 2011. The balance of the movement in borrowings relates to the outstanding balance on a revolving credit facility which is due for repayment in September 2010 and is disclosed as non current.

11 PROVISIONS 1 January Created Released Utilised Unwinding 30 June 2008 in period in period in period of discount 2008 £000 £000 £000 £000 £000 £000 Employer and public liabilities 18,875 1,375 — (1,897) 282 18,635 Surface damage 16,405 2,066 (106) (4,970) 241 13,636 35,280 3,441 (106) (6,867) 523 32,271 Claims 39 23 — (13) — 49 Restoration and closure costs of surface mines 54,598 16,843 — (3,862) 1,032 68,611 Restoration and closure costs of deep mines — shaft treatment and pit top 12,193 — (7) (1,057) 183 11,312 — spoil heaps 3,224 — (2) (8) 48 3,262 — pumping costs 6,304 — — — 94 6,398 Ground/groundwater contamination 6,465 — — — 97 6,562 Redundancy 4,099 419 — (2,588) — 1,930 122,202 20,726 (115) (14,395) 1,977 130,395

The nature of the Group’s obligations is as disclosed in the Annual Report and Accounts for the year ended 31 December 2007. The restoration and closure costs created for surface mines includes costs in respect of new sites and a one-off charge to reflect increasing fuel costs.

Restricted funds of £37,384,000 have been set aside to meet the liabilities due on the employer and public liabilities and surface damage provisions above.

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11 PROVISIONS continued Provisions have been allocated between current and non-current as follows: 30 June 30 June 31 December 2008 2007 2007 £000 £000 £000 Provisions payable within one year 31,221 35,360 31,061 Provisions payable after more than one year 99,174 105,771 91,141 130,395 141,131 122,202

Provisions are expected to be settled within the timescales set out in the following table. More than Within 1 year 1–2 years 2–5 years 5 years Total £000 £000 £000 £000 £000 Employer and public liabilities 5,469 5,305 5,969 1,892 18,635 Surface damage 3,000 2,727 6,000 1,909 13,636 8,469 8,032 11,969 3,801 32,271 Claims 49 — — — 49 Restoration and closure costs of surface mines 19,726 21,975 19,193 7,717 68,611 Restoration and closure costs of deep mines — shaft treatment and pit top 640 1,014 1,571 8,087 11,312 — spoil heaps 407 587 574 1,694 3,262 — pumping costs — — — 6,398 6,398 Ground/groundwater contamination — — — 6,562 6,562 Redundancy 1,930 — — — 1,930 31,221 31,608 33,307 34,259 130,395

12 RETIREMENT BENEFIT OBLIGATIONS 30 June 30 June 31 December 2008 2007 2007 £000 £000 £000 Industry Wide Schemes 77,117 56,389 48,893 Blenkinsopp 820 1,299 835 Concessionary fuel 23,741 21,974 23,443 101,678 79,662 73,171

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS continued For the six months ended 30 June 2008

13 STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Share Ordinary premium Other Retained Total shares account reserves earnings equity £000 £000 £000 £000 £000 At 1 January 2007 1,566 30,756 253,639 (41,842) 244,119 Profit for six months to June 2007 — — — 53,567 53,567 New shares issued 3 — — — 3 Actuarial gains on post-retirement benefits — — — 37,863 37,863 Accrual for long term incentive plan liabilities — — — 112 112 Movement on deferred tax asset in relation to retirement benefit liabilities — — — (12,986) (12,986) Fair value gain on revaluation of investment properties — — 51,043 (51,043) — Property revaluation on transfer to investment properties — — 1,231 — 1,231 Disposal of investment properties — — (2,370) 2,370 — At 30 June 2007 1,569 30,756 303,543 (11,959) 323,909 Profit for six months to December 2007 — — — 40,456 40,456 New shares issued 2 — — — 2 Actuarial losses on post-retirement benefits — — — (386) (386) Accrual for long term incentive plan liabilities — — — 172 172 Movement on deferred tax asset in relation to retirement benefit liabilities — — — (11,409) (11,409) Fair value gain on revaluation of investment properties — — 15,756 (15,756) — Property revaluation on transfer to investment properties — — 5,502 — 5,502 Disposal of investment properties — — (3,679) 3,679 — At 31 December 2007 1,571 30,756 321,122 4,797 358,246 Loss for six months to June 2008 — — — (10,208) (10,208) Actuarial losses on post-retirement benefits — — — (30,739) (30,739) Accrual for long term incentive plan liabilities — — — 237 237 Fair value gain on revaluation of investment properties — — 19,828 (19,828) — Property revaluation on transfer to investment properties — — 1,747 — 1,747 Disposal of investment properties — — (801) 801 — Hedging reserve created — Fair value gains in period — — 492 — 492 At 30 June 2008 1,571 30,756 342,388 (54,940) 319,775

15442 15/09/2008 Proof 12 14 RELATED PARTY TRANSACTIONS During the period the Group acquired 50% of the issued shares in UK Strategic Partnership Limited, as a joint venture company with Strategic Sites Limited for the development of certain investment properties. The first development will be at the Advanced Manufacturing Park at Waverley, South Yorkshire.

Investments in joint ventures 30 June 30 June 31 December 2008 2007 2007 £000 £000 £000 Coal4Energy 965 142 342 UK Strategic Partnership 904 —— 1,869 142 342

Transactions with joint ventures The following transactions were carried out with joint ventures: 30 June 30 June 31 December 2008 2007 2007 £000 £000 £000 UK Strategic Partnership Sale of land to related party 1,292 — — Coal4Energy Sale of goods and services to related party: — Coal 12,041 15,738 29,114 — Services 338 274 516 12,379 16,012 29,630 Coal4Energy Purchases of goods and services from related party: — Coal 5 — 24 — Finance costs 2 23 23 7 23 47

Sales and purchases to and from the joint ventures were carried out on commercial terms and conditions and at market prices.

Profit of £62,000 has been recognised in the period on the sale of land to UK Strategic Partnership.

Balances owing from/(to) joint ventures Coal4Energy The balance arising from sales of goods and services at 30 June 2008 was £1,143,000 (30 June 2007: £1,979,000; 31 December 2007: £2,332,000) owed from the joint venture, and the balance arising from purchase of goods and services at 30 June 2008 was £nil (30 June 2007: £nil; 31 December 2007: £nil).

UK Strategic Partnership There are no balances outstanding at the period end.

33 UK COAL PLC Harworth Park Blyth Road Harworth Doncaster South Yorkshire DN11 8DB t: +44 (0)1302 751751 f: +44 (0)1302 752420 [email protected] www.ukcoal.com Interim Report 2 0 0 8

MINING AND POWER

HARWORTH ESTATES