Miners have agreed to a new wage structure

The UK's biggest coal producer blamed geological problems, industrial action and "operating flaws" at its deep mines for its worsening fortunes.

The South Yorkshire company, led by new chief executive Gerry Spindler, said it hoped to return to profit in 2006.

By lunchtime on Thursday, its shares were down 13% at 115.75 pence.

UK Coal said it was making "significant progress" in shaking up the business. It had introduced new wage structures, a new daily maintenance regime for machinery at its mines and methods to continue mining in adverse conditions.

The company said these actions should "significantly uplift earnings".

It expected 2005 to be a "transitional year" and to return to profitability in 2006.

Property boost

In the wake of colliery closures, UK Coal's property portfolio has become a key focus for the company as more and more planning permissions are secured.

We continue to make progress and great strides have already been made Gerry Spindler, chief executive Check UK Coal's share price

Rental income has been boosted by converting former mining sites into business parks.

More developments are planned following the closure of Selby.

Surface mining skills are being used to rehabilitate brownfield land, which is being used to build homes or for light industry.

James Shaw, formerly property director of AB Ports, now heads the UK Coal property team.

Rising coal prices

In the meantime, the recent rise in coal prices has failed to benefit the company as most of its output had already been sold.

Total production costs were �1.30 per gigajoule, UK Coal said, but the average selling price was just �1.18 per gigajoule, up from �1.12 in 2003.

"We have a long journey ahead to fix these issues. We continue to make progress and great strides have already been made," said Mr Spindler.

UK Coal operates 15 deep and surface mines across Nottinghamshire, Derbyshire, Leicestershire, Yorkshire, the West Midlands, Northumberland and Durham.