Investment: Digging their way to work: The workers who bought the pit found it easier to cut coal than new finance

THREE THOUSAND feet underground at the Monktonhall colliery near Edinburgh, miners are working on what they call their 'golden mile'. With picks and explosives, the workers who each invested pounds 10,000 to take over the pit are opening the mile-long Peacock face, which they hope will safeguard their jobs and shareholdings.

As collieries close throughout Britain, the miners say their success in saving one of two remaining deep mines in Scotland after a two-year struggle is proof that, with the right management, pits thought to be unprofitable can prosper.

Work on the new coal face started this month, after directors of Monktonhall Mineworkers Ltd, the consortium formed to take over the pit, signed a pounds 7m rescue deal with Waverley Mining Finance, a quoted mining house. Under the financial restructuring package, Waverley acquired 49 per cent of the business, injecting pounds 300,000 of equity and providing loans and guarantees of around pounds 1m.

Willie McLucas, Waverley's investment manager, negotiated a pounds 1.8m subsidy from the Department of Trade and Industry, and Lothian Regional Council is providing a grant of pounds 230,000. The Bank of Scotland is understood to have written off much of the company's estimated pounds 1.8m debt.

Bert Brown, managing director of Monktonhall, said the deal would meet the need for pounds 3m of short-term debt, pounds 2m of vital new equipment to develop the face, pounds 1m to fund losses before it comes on stream in May and pounds 1m of working capital. Production of the mine's low- sulphur coal is forecast to rise to 550,000 tons this year from 150,000 tons in 1993; around 50 jobs will be created to meet contracts to supply British Coal and Scottish Power. For Mr Brown, a former financial consultant who joined the board in March last year, the agreement marks the end of an emotional struggle to save Monktonhall. 'When I first came to the mine, one of the first things I had to do was tell the men we had no money to pay them. It was very difficult but they agreed to stay at the coalface,' he said.

'Later that month one of the men was crushed to death in a rock-fall. Morale sank. And, as the financial hardship began to bite, miners, many of whom had mortgaged their houses to raise their stakes, or had borrowed at high rates of interest, came to talk to me - and I knew they were suicide cases. Now the same guys are singing as the cages go down.'

British Coal shut Monktonhall two years after the 1984-85 strike. Against the advice of the National Union of Mineworkers and local Labour councillors, 110 former miners, from as far away as Manchester and Barnsley, raised the pounds 1.1m they needed to set up the new company to lease the pit from British Coal. The consortium took over in June 1992, but production difficulties meant that no coal was cut until February the following year, by which time the company was more than pounds 1m in the red.

Miners began to blame their boardroom colleagues for the delays and debts. Davey McIlwaine, 43, recalled: 'They were just miners like us. They had no business experience, but just because they had a stake in the company they thought they could run the show. It was ridiculous. They were simply not up to the job.' Six directors, including the managing director, Jim Parker, were forced to resign.

With losses of pounds 3.7m in the first year of operation, the board began to seek new finance. Hanson and RTZ refused to invest. An offer from Caledonian Mining, a private Nottingham company, was brushed off - as were proposals put forward by the Libyan Arab Foreign Investment Company.

Last October, Jackie Aitchison, then chairman, announced a pounds 167,000 takeover bid from RJB Mining, a Nottinghamshire company, which would have left the miners with as little as pounds 1,000 of their original stake.

He urged the men to accept the deal, saying the company faced liquidation. But the miners, now numbering 167, unanimously rejected it as insulting, saying they would rather see the pit go under than sign 'for a song'.

Those who held out, hoping against the odds for a better deal, are jubilant. But they warn others seeking to take over mothballed pits against 'gilt- edged naivety'.

Mr McIlwaine said: 'We thought we could do it all ourselves. But miners are made to cut coal, not sit behind desks. We nearly lost what was most important to us - the chance to go back down the mine and enjoy the comradeship. That would have been unbearable.'

(Photograph omitted)