Mine at risk from Alcan's threatened closure: Dispute over expensive coal may force Northumberland smelter to shut with loss of thousands of jobs

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ONE of Britain's biggest coal mines, whose future is supposed to be secure, is under threat because of a dispute between British Coal and its largest industrial customer. About 3,500 jobs are at risk directly and indirectly.

British Alcan, part of the Montreal- based Alcan group, plans to close its aluminium smelter in Lynemouth, Northumberland, unless it gets cheaper coal supplies. That would threaten the nearby Ellington colliery at Morpeth.

The colliery sells 1.2 million tons of coal out of its 2.1 million annual production to the smelter. Alcan officials say the plant cannot compete because it is paying too much for its coal.

Energy accounts for a third of Lynemouth's costs, and Paul Belanger, managing director of Alcan Primary and Recycling in Newcastle, said the smelter was paying more than 50 per cent above international norms. Most of this disadvantage comes from the high cost of coal. 'We need a 40 per cent reduction in the price we pay British Coal to be competitive,' he said.

The Lynemouth smelter was built in the early Seventies and has always been reliant on Ellington Coal. The aluminium company has its own 380MW power station, which is fed by a conveyor belt from the colliery.

Alcan has become increasingly unhappy with the price it has had to pay for coal. It agreed to extend the contract that ran out at the end of 1992 to the end of this year only because it hoped it would then be dealing with a new, private owner.

As the privatisation programme was thrown off track, it started negotiating again with British Coal. It will not reveal the price it is currently paying for its coal, but industry sources say it is below the pounds 1.50 a gigajoule negotiated by the power generators.

The company is making no secret of its threat to close the smelter. 'On the renewal of the coal contract will depend the future of Lynemouth,' Jacques Bougie, Alcan's president, said. 'To maintain an aluminium smelting industry we need to obtain competitive costs of energy.'

Closure of Lynemouth would threaten the jobs not only of the 480 people who work at the smelter and power station, but also of the 1,600 Ellington miners. A coal industry source said he thought it was unlikely the pit could continue to operate without the smelter, even though it was on the Government's original list of 19 mines that would survive.

In addition, there would be job losses at the port of Blyth, where alumina for the plant is imported. Adding local dependent jobs, an Alcan official estimated that up to 3,500 jobs could be lost in total.

A British Coal spokesman said that the corporation 'is negotiating with Alcan, and we are confident we can offer a competitive package'. Privately, officials are expressing alarm at Alcan's tone, and worry that the Canadian company could be planning to use energy costs as an excuse for closing Lynemouth. Alcan has lost money for the past nine quarters - aluminium prices have been forced down by a combination of recession and exports from the CIS - and it has been cutting costs savagely. Lynemouth has been running at half capacity since the end of 1991.

Mr Belanger says that the company is looking at ways of keeping Lynemouth operating if agreement is not reached. It has considered running the power station on gas, but the favoured alternative appears to be imported coal. A British Coal source said this would mean moving the coal by road, because it controls the railhead and would not let Alcan use it.

There is another long-term possibility, which Mr Bougie said Alcan would not rule out: running the colliery itself. 'We feel the coal operation could be cost-effective,' he said.