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Property Market Report July 2006
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Property Market Report | The minerals and waste management industries |
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The minerals and waste management industries Contents
OverviewThis years report (the twelve month period to July 2006) sees the publication of the Governments Report on the Energy Review. This aims to put the UK in a position to meet the two major long-term challenges in UK energy policy namely climate change and secure, clean energy at affordable prices. At this stage it is too early for meaningful comment on how this will affect the Minerals and Waste Management Industries. Construction materialsAggregates The first quarter of 2006 saw a return to growth in the aggregates and ready-mixed concrete markets with asphalt sales suffering a decline during the same period. Compared with the same period last year the Quarry Products Association show ready-mix concrete sales up 6%, crushed rock 4% and sand & gravel 1%. Asphalt sales were down 4%. A modest increase in growth is expected for 2006 as a whole, driven mainly by a recovery in government investment, with stronger growth being forecast for 2007 and 2008. Aggregate Industries, who last year were themselves acquired by Holcim of Switzerland, are reported to have reached agreement on a proposed £300 million takeover of Foster Yeoman, the Somerset based quarrying company. Prior to the proposed takeover Aggregate Industries was the 4th largest UK producer. Market leaders, Tarmac, share of the market is estimated at 22% with Hanson in second place and Cemex, who last year acquired RMC, in third place. The Foster Yeoman deal will propel Aggregate Industries into at least third place in the market. Lafarge continue to be the fifth largest producer and these five companies together account for some 70% of UK production. The Aggregates Levy, the subject of some considerable discontent within the industry since its introduction in 2002, is the subject of a legal challenge to the European Court of First Instance by the British Aggregates Association. The challenge is based upon the exemption of certain other “non-aggregate” extractive industries such as slate, cement china clay and industrial minerals from the Levy. The Levy, charged at £1.60 per tonne on primary aggregates, has raised in excess of £1.3 billion since its inception. The judgement, expected later this year, is awaited with interest and BAA members are being advised to lodge claims for repayment of the Levy in the event of the challenge being successful. Marine Aggregates
Marine aggregates are an essential source of sand and gravel, especially in areas where land based extraction is not readily available. In 2005 around 21 million tonnes were extracted from the bed of the English and Welsh Territorial Sea and Continental Shelf, under licence from the Crown Estate Commissioners. The majority of this extraction was for the construction aggregates market with 12 million tonnes landed in England, 1 million tonnes in Wales and 6.5 million tonnes exported to continental Europe; the remaining 1.5 million tonnes being used for beach replenishment. The south east remains the largest user of marine dredged aggregates with around 6.5 million tonnes landed at ports on the Thames Estuary. Permission has recently been granted for new licensed areas of marine dredging in the eastern English Channel over a 15-year period, initially restricted to a total extraction of 21 million tonnes in the first 5 years. These recently licensed areas have considerable potential reserves and are generally accepted as forming the cornerstone of future provision of marine dredged aggregates for many years to come.
Recycled and Secondary Aggregates
Evidence that the market for recycled aggregates continues to grow is shown by the increase in the numbers of recycling sites. Estimates of the total demand are difficult to determine due to demolition materials being processed actually being used within the redevelopment of the site. The Governments Energy Review was published as the report was being prepared and will determine the country’s energy strategy to the middle of the 21st century. Over 2000 responses were received by the Government and have provided lively debate. Initial headline issues consider the carbon challenge, saving energy, cleaner energy and energy security. Coal Market View The future of Britain’s shrinking coal mining industry is caught in the net of fluctuating world energy prices and ever tightening environmental legislation. The recent increase in world gas prices and increasing energy demand from developing economies has lead to an increase in coal burn over the winter when approximately 50% UK electricity was generated from coal. Despite this total coal production was down by approximately 12% at 20.47 million tonnes. The increase in demand is being met by imports that exceeded 40 million tonnes in 2005. Coal Production to March 2006* (thousands of tonnes) -
* Figures taken from combination of DTI and Coal Authority Data The number of large deep mines reduced further to just six, five in England and one in Wales following UK Coal’s closure and mothballing of Rossington and Harworth Collieries. Similarly opencast production also continues to fall with the number of active opencast coal mines also falling to 35. Coal producers are however hoping for better times and Richard Budge, formerly RJB Mining, has recently announced the redevelopment of Hatfield Colliery via a partnership between his company Powerfuel and one of Russia’s major coal producers Kuzbassrazrezugol. The project is understood to include a new clean coal generation plant and total capital costs are anticipated to be in the region of £910 million. On shore Oil and Gas General Overview Activity in this sector continues to be buoyed by high gas and oil prices with both commodities achieving near record prices in the first half of the year. The price of Brent Crude soared to reach a high of US $74.28 per barrel on the 2 May 2006 and is at the time of writing trading at about US $70 a barrel, an increase of 20% above last year’s prices. The steep increase in gas prices was felt most by the large industrial users who purchase gas on the spot market or very short-term contracts. Some companies within the Brick Industry reported daily gas prices reaching £1.50 per therm in December and January and as a result some shut down for a period when prices were highest. Production at the country’s largest on shore oil field at Wytch Farm in Dorset has continued to fall and output is now less than a third of the 1990’s peak. However activity in the oil and gas sector generally remains high. Star Energy announced the completion its Singleton X9 development well at the company’s Singleton field in Hampshire. The hole is believed to be the longest 8.5” diameter hole section drilled onshore in the UK at 8,140 feet. They have also side tracked their X8 well and the two will be placed on simultaneous production to increase the output from the field above the current level. The company have also announced intention to buy out Edinburgh Oil and Gas’s minority share in the Albury gas field in Surrey and Storrington oilfield in Sussex to give them 100% ownership of both fields. Following completion of Star’s Humbley Grove 10 billion cubic foot gas storage facility in 2005 the company plan to further increase their storage capacity with a similar facilities at Albury and Welton.
Landfill
The market for waste and landfill continues to evolve. In October 2005 Onyx (since renamed Veolia Environmental Services) acquired the hazardous waste business of Shanks and Severn Trent is currently expected to de-merge its waste arm Biffa by the end of 2006. Landfill is still the core component of waste management in the UK with currently over 4000 operational sites. Recent research suggests that the UK lags behind most other European countries in diverting biodegradable waste away from landfill. However, as more legislation is introduced that aims to decrease the dependence on landfill and regulate the types of materials being disposed of the volume of wastes being landfilled is inevitably reducing. One study estimates that the overall number of landfill sites in the UK is reducing at a rate of around 35 each year. The Environment Agency has steadily moved away from using site inspections to regulate activities but is undertaking more in-depth audits. The number of sites receiving check monitoring has fallen from around 480 in 2000 to less than 100 in 2005. This reduction is primarily due to the introduction of a risk-based operator monitoring system. The use of autoclaving already widely used in the UK to treat surgical waste could become increasingly important in the municipal waste treatment market. Autoclaving involves treating waste under pressure with steam at 1600C, in rotating vessels. This process sterilises the waste, reduces its volume by about 60% and produces 20% recyclables, 60% organic fibre and 20% waste for landfill. The fibre can then be composted, used as fuel, or even used as a raw material. A new waste data strategy launched by DEFRA this year should pull existing waste data into a single database. A phased approach will be used initially to enable simple reports to be produced (which will then be available on the DEFRA website) and later on GIS will be utilised to add a geographical dimension to the information. In April 2006 the long anticipated Mining Waste Directive has finally been published. Although this EC Directive exempts mining wastes from the Landfill Directive it will nevertheless see a marked increase in regulation of the mining industry. A mining operation comes under the scope of the directive when inert waste has been accumulated or deposited for more than three years or non hazardous waste for over one year. A permit will be required, the wastes will need characterising and the volumes estimated and a management plan produced. Financial guarantees will also be required (before commencing operations) to ensure proper closure and post closure monitoring. The UK’s first ever fixed-soil treatment facility was opened by Biffa, in partnership with Canadian firm Biogenie, in November 2005 at Risley near Warrington. The plant is able to treat contaminated waste soils to enable them be diverted away from landfill. The site has the capacity to treat 50,000tonnes of soils per year and uses micro-organisms to break down and degrade the contaminants in the soil. Waste to energy The Energy Minister Malcolm Wicks has recently given approval for a 72MW energy from waste power station at Belvedere in South East London. The decision was taken after careful consideration of the recommendations from the Inspector who oversaw not one but two public enquiries into the scheme. The plant will take waste from the capital that will be transferred to the plant primarily by barge along the River Thames. Also announced was a proposed super incinerator on the Wirral at Ince Marshes. The proposed plant some 3 times the size of that planned at Belvedere would take 600,000 tonnes of waste arising from Liverpool, Manchester and Cheshire.
Contaminated land Later this summer sees the proposed extension of Part IIA of the Environmental Protection Act 1990 (EPA 1990) to cover radioactivity with the provision for the identification and remediation of radioactive contaminated land. A new industrial profile has been published by DEFRA, “Industrial Activities which have used Materials Containing Radioactivity”, which gives advice on radioactive contamination in relation to certain industrial processes for site assessment. All industry profiles are now available free on line via the Environment Agency Website. Provisional figures published in the Land Use Change in England: Residential Development to 2005 (LUCS-21) Report indicate a 1% increase in housing built on previously developed sites from 72% previously reported in 2004. It is noted that the figure indicates significant regional variation from the average. There has been public concern over the blight of land and property values by the contaminated land regime as properties have been affected by determinations under Part IIA of the EPA 1990. Questions have been raised in Parliament over the issue attracting media attention as more homes are affected. There are reports that site investigations of potentially contaminated land sites can also possibly cause issues of stigma and blighting of property values. The number of sites determined by Local Authorities under Part IIA of the EPA 1990 up to March 2006 was 576 in England and Wales, with 6 in Scotland. However due to multiple designations of single properties within a site area the figure is nearer to 90 locations for England and Wales. It is however anticipated that fewer sites may well be determined in the immediate future until Local Authorities receive further advice on the use of Soil Guideline Values (SGV). This advice is particularly pertinent where a contaminant is present at a concentration equal to or not significantly greater than the SGV. Until this advice has been produced the Environment Agency will not be publishing any further SGV’s. The long running legal case involving Sevenoaks District Council and Circular Facilities was recently settled in an out-of-court settlement and the withdrawal of the remediation notice. The key issue being the difficulty in proving that the alleged appropriate person "knowingly permitted" the presence of contamination. The Environment Agency has indicated that many oil spillage incidents investigated are from domestic incidents, where heating oil tanks have leaked. Some of the land affected has been determined as “contaminated land” under Part IIA of the EPA 1990. National Grid Gas (NGG) is appealing against the judgement which found it liable for remediation in the Bawtry case (National Grid Gas plc v Environment Agency [2006] EWHC 1083). The importance of this case is such that the appeal is likely to go straight to the House of Lords. The High Court in May upheld the Environment Agency’s decision to identify NGG as the appropriate person responsible for funding remediation of a residential site on a former gasworks at Bawtry. The case raises extremely complex issues as gas production ceased and the houses were built more than 30 years ago. The pollution was caused by earlier private and nationalised gas companies and the house building company ceased trading long ago. The Agency designated the site a special site and remediation works to protect residents are underway. The issues of who pays for these works and the implications for thousands of other utility sites, former landfills etc. are being closely examined. The judge ruled that NGG has inherited liabilities from the former gas undertakers but also said that liabilities would also have been incurred by the former house builder had it still existed. The case has massive implications for utility companies and the heirs of nationalised industries, central and local government, house builders and developers. Wales Aggregates (Hard Rock and Sand/Gravel) The Market In December 2005 Wrexham CBC granted planning permission for an extension to Borras Quarry near Wrexham enabling Tarmac to work 11.8 million tonnes of sand and gravel over the next 25 years. The operation is considered to be the major source of concrete and block making sands in the North Wales and North West regions. The proposals enable current production levels of between 600,000 and 700,000 tonnes per annum to be maintained until 2011 with the expectation that with the closure of Tarmac quarries in Cheshire production could rise to 900,000 tonnes per annum. Marine Aggregates In November 2004 The Assembly Government published its “Interim Marine Aggregates Dredging Policy”. The aggregate is of high quality and there is little wastage with consequent production and manufacturing benefits. The historic dependence of SE Wales on marine dredged resources is unique in the UK. The Welsh Assembly have accepted that it is unlikely that marine dredged material could be replaced in the foreseeable future so although alternative sources will continue to be researched aggregate dredging will continue in accordance with this policy. The policy is principally that dredging will focus in areas more off shore and west of the Bristol Channel. The policy document detailed the 7 outstanding dredging applications. One of the sites at Nobel Banks was subject to a Public Inquiry in the autumn of 2005 and permission to dredge was granted to Llanelli Sand Dredging Ltd. A second application in respect of Helwick Bank has been the subject of a public inquiry in June 2006.
Coal During the last 12 months Tower Colliery has continued to produce 11-12,000 tonnes of coal per month and apart from three small drift mines it remains the only deep mine in Wales. Celtic Energy Ltd supply 90% of the opencast coal mined in Wales. The company is part of the Celtic Group and is wholly owned by Walters Mining Ltd. which is closely linked to the Walters Group of Companies, the Hirwaun based civil engineering and heavy plant company. There are currently four operational sites Margam, Selar and East Pit in the County Borough of Neath, Port Talbot and Nant Helen in the County of Powys. The Mineral Planning Authority is currently considering a planning application for an extension at Margam. Last year it was reported that the long awaited planning permission to develop an opencast coal site at Ffos-y-Fran, as part of the East Merthyr Reclamation Scheme, had been granted by the Welsh Assembly Government. The planning consent provided for the extraction of 10 million tonnes of coal over a 17-year period. However the saga took another twist following an appeal to the High Court. The planning permission was quashed and an order made requiring the permission to be looked at afresh in such a way that the resultant decision could be seen to be clear of any bias. It is understood that the Welsh Assembly have been granted leave to appeal to the Court of Appeal and the situation and outcome remain uncertain.
Waste In response to the National Waste Strategy for Wales – Wise about Waste (2002) - Waste Disposal Authorities have been busy in recent years preparing their individual Waste Strategy Plans necessary for each Authority to achieve the demanding targets that have been set by the National Assembly. The initial emphasis by all authorities is to achieve the recycling and composting targets set at 25% for 2006/7 and 40% for 2009/10 that were given even greater impetus by the introduction of the Landfill Allowances Scheme (Wales) Regulations 2004. For each year up to 2020 every Waste Disposal Authority in Wales is set a maximum quantity that it may landfill. For the period October 2004 to 31st March 2005 the overall target for all Welsh Authorities is quoted at 550,000 tonnes. For the year 2005/06 the target is 1,021,999 tonnes reducing 710,000 tonnes in 2010. Failure would result in a penalty of £200 per tonne on the excess over and above the prescribed allowance. The results for the first period 2004/5 showed that all authorities had been able to keep within the Allowance. Those authorities that were well within the target were Newport and Monmouthshire whilst Ceredigion and Bridgend were just 2% below their allowance. Each authority is making strides in material recovery and recycling. For example Cardiff City Council has in late 2005 opened its new Material Recovery Centre that had a reported build cost of £4m. This operation completes the kerbside segregation of waste for recyclables. However Cardiff recognise that a residual waste treatment plant will need to be developed possibly in conjunction with neighbouring authorities and that it will necessary to develop a new landfill site as the current facility has only a short term future. Caerphilly has also taken been particularly active, purchasing a large industrial unit in a central location for the county borough for conversion to a waste management facility. The development will provide facilities to recover, recycle and treat the entire municipal waste stream with any residual waste bring made inert before going to landfill. It has been reported that the Council paid £5.2 million pounds for the property that became available when the St Ives Printing Group shut down their operations. It is further reported that Biffa plc who are contracted to the Council for the disposal of the Municipal Waste Stream are planning to spend £40 million pounds on developing what Biffa describe as a “hi-tech recycling centre”. The latest position on the integrated waste management facility developed as a joint venture between HLC (Neath Port Talbot) Ltd and Neath Port Talbot CBC and Bridgend CBC is that the Company has been put into Administration. The plant was developed in 2002 at a cost in excess of £30 million. Neath Port Talbot Council now manage the plant and although the composting and energy recovery schemes are still not fully operational the plant receives the entire waste streams from both authorities with residual waste going to landfill.
ScotlandThe minerals market in Scotland as a whole remains steady. The environmental effects of opencast coal remain a delicate issue. For example controversial plans by Scottish Coal to extend the Broken Cross site near Douglas, South Lanarkshire by 340 acres went to public inquiry in February and remains outstanding. However, despite what appears to be a tightening of the planning regulations with new guidelines introducing a 500m buffer zone around site compared to 200m for other mineral extraction sites, Scotland still provides the vast bulk of the UK’s opencast coal production providing some 7.7million tonnes in the year to March 2006. Electricity generation from landfill sites finally appears to be making its mark north of the border with a number of relatively large new operations operating, under development or being proposed.
References
Notes on value ranges quoted below The value ranges quoted are based upon the best information available to VOA during the past 12 months, The number of relevant transactions in the minerals and waste market are limited and where there has been little or no information the ranges are informed by movement in value in adjoining regions and valuer opinion. The ranges are of necessity very broad as they encompass a wide range of categories contained under each class They should not be relied upon as indications of specific value. Foot Note The results of the Government's Energy Review were published in July. The main themes emerging appear to be: The continued commitment to the EU Emissions Trading Scheme (ETS) to reduce carbon emissions into the atmosphere in order to give more certainty to companies planning long term investments in power stations and other energy intensive assets. Increased focus on energy saving in homes and businesses by the application of modern energy saving technologies and introducing incentives to businesses outside the ETS scheme to make energy savings. Reduced consumption reduces reliance on the use of imported fuels Looking to increasing the number of smaller local renewable energy electricity generation schemes and more combined heat and power schemes. These smaller schemes are seen to be more flexible and lose less energy in distribution. A review of the planning processes around electricity generation projects in particular circumstances relating to public enquiries in respect proposed nuclear power stations. The continued use of coal for electricity generation and the development of carbon Capture and Storage technologies to reduce carbon emissions from both coal and gas fired power stations.
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Inert waste royalties
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