Case study

Tower Colliery

Background

Tower Colliery, based in the South Wales Coal-field, was closed by the British Coal Board in 1994, and was then offered for sale to the public as part of the then UK Government's policy of privatisation of the whole of the British coal industry.

The colliery had been in existence since the 19th century and was capable of producing 900,000 tons of coal a year. The coal is of a very high quality and has a ready market both in the industrial and domestic sectors.

The local lodge of the National Union of Mineworkers had led a very public fight to try to prevent the mine being closed. They felt that the mine was economic and had good reserves for at least ten year's production. They also knew that the managers wanted to buy the mine.

The options

The men were convinced of the viability of the mine and they approached the Wales Co-operative Development and Training Centre for help in preparing a bid. They approached the Centre because of its strong Trade Union links, it is also the only co-operative centre in the UK financed by the TUC.

An early meeting was held with all the workers to explain the process involved in mounting a bid and to outline the legal and financial structure of a co-operative. They were also asked to think seriously about investing their own money in the venture. The meeting was very enthusiastic and
regular meetings with all the men were held throughout the process.

The process

A steering committee of eight miners was elected to work with the Centre to prepare a business plan. This was to include a mining plan, an independent survey and financial projections.

The steering committee worked with the Centre for four months preparing this plan. It was then decided to appoint Price Waterhouse as financial advisers as the bid would have to be made in open competition with large mining companies and specialist advice was needed on structuring the bid. They also helped to negotiate the financial details with Rothschilds, who were acting for the Government on the sale of all the coal mines.

The raising of the finance

The finance was raised initially by the 250 miners each investing £8,000, which raised £2,000,000, and a loan of £1,000,000 from Barclays Bank. Most of the miners used their redundancy money for this, though 60 of them took out personal loans to fund their investment. A royalty payment to the Government for each ton of coal sold over the first five years was negotiated. In effect the mine was purchased with an initial down payment of £2,000,000 followed by a system of deferred payments. There is also an Employee Benefit Trust to provide an internal market for shares (employees must sell their shares back to the company on leaving).

The planning started in April 1994, the Government announced that the miners were the preferred bidders in October 1994, and the deal was completed in December 1994. The mine commenced working under new ownership on 2 January 1995.

After the conversion

The new company has been successfully trading for over three years and has recorded a profit for every year. It now employs over 300 people and has plans for expansion in to other mines. It has established a very popular visitors' centre and has close links with the local community.