Fuel prices raise hopes for future of coal mining operations in UK

Once, Britain's deep pit coal industry was the largest single mining sector in the world. Within recent memory, it employed a million people, organised by the National Union of Mineworkers which not only fought for British miners but the rights of those as far afield as Bolivia and South Africa. Then, in the early eighties came "Thatcherism" and a model for the privatisation of public services soon adopted by the World Bank and forced on economies all over the globe. The deep mining of British coal was replaced by open-pit exploitation and the country began importing from others, such as Colombia and Indonesia, where livelihoods and ecology were put at much greater risk.

Now, however, those still left in the UK coal industry are contemplating its revival.

Fuel prices raise hopes for future of mining operations

By Rebecca Bream

Financial Times

23rd August 2004

The last of the five pits at the Selby mining complex in Yorkshire will close within weeks, marking the end of what was once the country's flagship coal project.

The complex was opened in 1984 and at its peak was producing 12m tonnes of coal each year, but in recent years geological problems have led to annual losses of £35m. Selby's seams contain enough coal to be mined until 2008, but owner UK Coal is stopping production early. "We had to call a halt to the losses," says Gordon McPhie, chief executive of UK Coal, the company that bought up much of the UK's coal mines after privatisation in 1994.

The closure of Selby next month might seem a sombre moment for the coal industry, but higher coal prices and new questions over the country's "energy mix" mean that the outlook for the business seems brighter than it has been for years.

Although coal prices have risen, oil and gas prices have risen further, prompting a rethink among power companies Coal is used to generate about a third of the UK's electricity, with the rest coming from gas and nuclear energy. Supporters of coal argue that it is central to satisfying higher power needs during the winter, as its is easier to turn capacity on and off at coal-fired power stations than at gas-burning plants.

About half of the country's 55m tonne annual coal requirement is imported from countries such as South Africa and Russia, but a rise in shipping costs means that domestic coal production can compete better with imports. UK Coal, which operates eight underground collieries as well as some open cast mines, is still making losses and is reducing its coal production. Last year it received a £36m subsidy from the government, which it said was vital to the continuing operation of its mines. The group's attractive portfolio of agricultural land and disused pits means that for some years the market had assumed that in time it would quit mining and metamorphose into a property company.

According to Mr McPhie, however, the rise in world coal prices to almost $80 (£44) a tonne from about $35 a tonne a year ago has given its mining activities a new lease of life. "There is more certainty over future demand for our product and we will get better pricing." Most of UK Coal's production is tied up in long-term supply contracts to power generators such as Drax in Yorkshire but because contracts are renegotiated each year, the company should benefit from higher prices.

Optimism about the future of the UK coal industry, which last year produced 28m tonnes compared to more than 100m tonnes in 1980, also extends to smaller coal companies. ATH Resources, which was formed six years ago through a management buy-out, listed on London's AIM market in June and raised £11m. The company operates two open cast coal mines in Ayrshire and plans to expand in the UK as well as in France.

"The UK coal industry has a good future, albeit on a slightly reduced scale," says Tom Allchurch, chief executive of ATH.

Other coal producers in the UK include Scottish Coal, HJ Banks and Tower. Mr McPhie, at UK Coal, says that if coal prices stay high and England's strict planning laws are relaxed, new coal mines could be opened, something that was unthinkable a few years ago. "There are massive reserves of coal around Oxford, for example. In a future of high energy costs, the UK does have the potential to extract more coal reserves."

Open cast mines are cheaper than underground ones, which can cost 300m-£350m and take six to eight years to build. However, they have a more visible effect on the landscape.

The government should support a diverse range of energy sources, says Mr McPhie, and therefore preserve the particular skills contained within the UK Coal industry. "It is important to maintain a coal industry with enough mass to build on if appropriate in the future, it is strategically important for the UK."

The company has tried to redeploy some of Selby's miners to nearby pits, such as Kellingley. UK Coal is even recruiting new miners straight from school to replace the ageing workforce and bring "new blood into the industry".

Union with sense of the past finds a mission in the present and hopes history will repeat itself

Among British unions, the National Union of Mineworkers is distinctive for its acute sense of social and industrial history, its political perspective and community- orientated philosophy which goes far deeper than modern trades unionism's offers of discounted insurance and holidays, writes Chris Tighe. With hindsight, the miners' year-long strike in 1984-85 could be viewed as a class war between labour and capital, embodied in then-prime minister Margaret Thatcher, or as a kind of Custer's last stand against pit closures.

These have continued under a Labour government which is a very pale pink dilution of the Labour party the NUM once fervently supported. Due to coal mining's contraction, the number of NUM working members has shrunk to fewer than 4,000, from 1m in 1947. Yet the NUM thinks, and acts, much bigger - partly because it is. It is actively involved with about 100,000 members, the consequence of its community emphasis and the legacy of mining-related ill health. Union officials have been instrumental in helping retired miners and their families obtain, so far, about £2bn in state compensation, paid to sufferers of chronic bronchitis, emphysema and vibration white finger. Ian Lavery, NUM chairman, estimates the total payout could reach £8bn.

"If every pit goes, we will still maintain a presence in every community where it's required to carry out the obligations of the cradle-to-grave policy," says Mr Lavery, young in NUM terms at 41. "We won't let people down." The industry and the NUM are growing old together, yet that could change. The UK has big coal reserves; Ellington, Northumberland's last pit, has a "200m tonne Klondyke", says Allan Stewart, its NUM lodge secretary. As awareness grows of the potential energy shortfall, the NUM is commissioning research to present to government to show how exploiting national reserves, allied to clean coal technology, could resolve the problem. "We need coal," says Mr Lavery, "but these are political decisions. We will live or die by them."