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News Extra: Daw Mill colliery fire tips UK Coal into administration

15 August 2013

The spontaneous combustion of a coal seam at UK Coal’s Daw Mill colliery in North Warwickshire in February 2013 caused the closure of the pit and forced the company into administration in July. Daw Mill produced 2.2m tonnes last year out of UK Coal's total of 8m tonnes.

The company estimated the fire and closure cost a total of £300m - £160m for the coal itself, £100m for the equipment lost and £40m to close it down.

Administrators PwC have carried out a restructuring operation, transferring the majority of the company’s business and assets to a new company called UK Coal Production Ltd and a number of trading subsidiaries.

The restructuring preserved 2,000 jobs, including 120 former Daw Mill miners who have been reassigned to the company’s other sites. There will be 350 job losses at the colliery, one of the last deep coal mines in the UK. UK Coal Production Ltd retains two deep mines at Kellingley in Yorkshire and Thoresby in Nottinghamshire, and six surface mines.

David Kelly, joint administrator and PwC partner, said, “The impact of the Daw Mill fire could not have been predicted and led to major losses for UK Coal.  Since then, the management team and key stakeholders have been working to find a solution to save the business, and this would not have been possible without the support of the Pension Protection Fund, customers, suppliers, all parts of government, unions, employees and their families.

“This deal represents the best outcome for the creditors who would have lost virtually everything if operations had ceased trading.”

Kevin McCullough, Chief Executive of UK Coal, said “This is the best outcome that it was possible to achieve. It means that this country can still produce coal on a reasonable scale.  It may be a small industry, but when 40% of our energy still comes from coal it makes absolute sense to use as much British coal as possible to help keep energy bills from being even higher.“

The company supplied 5% of the UK’s energy needs.

McCullough said he did not believe the company could have prevented the fire, but the BBC has claimed mine managers were warned of the potential fire risk well before it ignited.

The Health and Safety Executive (HSE) said it had warned against continuing mining the pit’s 32s coalface several months earlier.

"Our advice to UK Coal was they should consider stopping that particular face sooner rather than later, because they were heading for a geological fault," said the HSE’s chief inspector of mines, Steve Denton. Mining through a fault can be dangerous, because it significantly increases the risk of roof collapse, fire and other hazards.

Despite the warnings, the company decided to continue through the fault, convinced the health and safety risks could be managed.

In a series of emails and letters seen by the BBC's File on 4 programme, Health and Safety Executive mine inspectors urged the company to stop mining this area because they were not convinced the risks were being managed properly.

"I remain convinced that early salvage [closure] of this face is essential to minimise risk of serious injury to the workforce," one communication in March 2012 said.

Another refers to a fire in May 2012 on the same coal face. It concludes the fire was due to "the failure of your risk control measures.” 

“You were only hours from losing the mine and in order to recover the situation, persons were exposed to increased risk."

No-one was killed as a result of the Daw Mill fire in February 2013, but it was the latest in a series of serious accidents at mines owned by the company. According to the HSE, eight people died in the space of just five years between 2006 and 2011.

"During that time, there were probably no more than 3,500 employees below ground in UK Coal mines so for eight people to die is just unacceptable in anybody's terms," Mr Denton said.

"It's not excused by the fact that mining is quite a hazardous industry. It's still high, much too high."

Chief executive Kevin McCullough, who joined UK Coal at the beginning of 2013, acknowledged the high death rate was unacceptable. But he did not accept that managers were wrong to continue mining through the fault.

"If the HSE had been sufficiently worried they could have, and perhaps should have, issued a prohibition notice on us not to actually work that face," he said.

"They didn't do that, they were down there inspecting the methods of work literally two or three days before that fire broke out so I was personally satisfied that we were doing all that was reasonable in our risk assessment and approach to mining that face."

The company had been struggling financially before the fire because of competition from cheap imported coal, production problems and a £500m deficit in the company pension scheme.

The Financial Times says UK Coal rejected a bid to buy its surface mines and run its deep mines under contract in favour of a restructuring. Hargreave Services, the listed coal miner and importer, is believed to have made the bid on June 5, a month before UK Coal entered administration on July 9.

The FT says UK Coal creditors are owed £189m and are expected to receive 7.15p in the pound. The British taxpayer, through the Coal Authority, faces millions of pounds in clean-up costs for the Warwickshire pit.

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