Coal Plc reported a sharply wider first-half loss on increased costs as it was hurt by challenges in both deep and surface mining and cut its deep mine production forecast for the year.

While the difficult conditions in some of its mines will continue to present challenges through the second half, the biggest British coal producer said it was beginning to see better cash flow from new and amended contracts with its blue chip electricity generator customers.

The company provides about 95 percent of its 8 million tonnes coal supply to its four core electricity customers -- Scottish and Southern Energy, Drax, EDF, and EON.

UK Coal estimates capital investment of about 65 million pounds ($105.3 million) in mining in the full year, Chief Executive Jon Lloyd told Reuters on Thursday.

However, it sees limited capital expenditure on property in 2010.

As and when the market improves, we will move in to the development side, CEO Lloyd said.

The company said an improved performance, in terms of both production and development, at its Daw Mill mine contributed to higher operating costs.

A significant proportion of that cost change was actually a conscious decision of investment, Lloyd said.

The company, which has four deep mines, said it put together a 110 million pounds investment programme for its Kellingley and Thoresby mines, which continued to experience difficult drilling conditions.

We had instigated it about 18 months ago and it will be finished by the turn of the half next year, Lloyd said.

The company now expects deep mine production for the year to be 6.4 million tonnes to 6.6 million tonnes, down from 6.75 million tonnes estimated earlier.

UK Coal posted a pretax loss of 81.5 million pounds for the six months ended June 27, compared with a loss of 9.9 million pounds last year.

Revenue fell to 159.8 million pounds from 172.9 million pounds, while net finance costs almost doubled to 10.2 million pounds.

Total first-half production was flat at 3.7 million tonnes, the company said in a statement.

It incurred a non-cash property revaluation loss of 37.4 million pounds during the period, against a gain of 19.8 million pounds a year earlier.

UK Coal shares were down 3.35 percent at 122.75 pence at 1310 GMT on the London Stock Exchange.

($1=.6170 Pound)

(Additional reporting by Balachander Surianarayanan; Editing by Ranjit Gangadharan and Gopakumar Warrier)

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