HATFIELD Colliery, where scenes from the film Brassed Off were shot, is the British coal mine that refuses to die. Despite four periods of administration since privatisation, it is now the last deep coal mine in the United Kingdom not to have announced its closure.
Like all businesses Hatfield has to confront the realities of the market it faces. Some 60 million tonnes of coal are still burnt each year in Britain, mainly in coal-fired power stations. Fifty million of these are now imported, mostly from Russia and Colombia. World prices have hit historic lows at below £50 a tonne.
There is an abundance of coal on international markets, partly due to displacement by shale gas in the United States and partly because of a slower growth rate in China. As prices are in dollars, the strengthening of the pound in recent years has further disadvantaged indigenous coal.
The long-term success of any coal mine depends on developing future coal faces while digging coal from the existing one. This can only really be successfully managed when a mine is part of a much larger group which allows for some cross-subsidy. In the summer of this year it became apparent that Hatfield Colliery was struggling with its cash flow. The cost of investing in a new face was making it difficult to keep paying all our 200-plus suppliers on time.
After just 10 days of discussions in September, Hatfield managed to negotiate a £4m loan from the National Union of Mineworkers. This bridging loan will enable us to start mining a new face from December which should have a life of up to 18 months. Even if we can only sell the coal at world prices we will be able to pay back the loan with interest. But our ambitions are much greater than that.
Up until last month, Hatfield was receiving a price of over £60 a tonne for its coal under a long-term contract. We are now seeking to negotiate three-year contracts at a similar price with some or all of the four large coal-fired power generators (EON, EDF, Drax and Scottish and Southern). This would provide us with the cash to develop new faces to take the mine beyond the Spring of 2016. As it would take over 12 months of work to get access to these faces, contracts need to be in place within months.
Tomorrow, we have an open day at Hatfield when we will be outlining our plans for the future to the coal-fired power generators, our suppliers, rail freight companies and so on. The local MP, Ed Miliband, will be in attendance, as will officials from the Department of Energy and Climate Change. In the subsequent weeks we have invited representatives of all the main political parties to the mine, including Ukip and the Green Party, to try and rally support.
Analysts expect world coal prices to rise in the future. If each of the Big Four generators took a quarter of our annual output it would cost them around £2m a year each. For that they would be getting a valuable hedge against future price hikes.
Secondly, in terms of corporate social responsibility they would be able to report to their shareholders that they were sourcing coal from a mine which, unlike many overseas mines, insists on the very best health and safety standards.
Thirdly, although British coal mines do not receive any public subsidy, the same cannot be said of generators like Drax.
The biggest coal-fired power station in Europe and its partners are set to receive over £250m in a European Union grant to build a pipeline to take its emissions into the North Sea. Courtesy of the Government, Drax is also set to receive premium prices for power supplied to the grid from the country’s first clean coal power plant which is due to be built on the site by 2020.
If their intention is simply to burn Colombian coal in this brand new power station the British taxpayer may well question whether they are worth so much public support.
Official Government energy projections suggest coal will be part of our energy mix for many years to come.
Hatfield is the last redoubt of Britain’s deep coal mining industry with at least 40 years of reserves.
Thirty years after the Miners’ Strike, we owe it to those who have gone before us not to go quietly into the long good night.
John Grogan is the chairman of Hatfield Employee Benefit Trust, which operates Hatfield Colliery