September 4, 2015 / 1:04 PM / 2 years ago

Norway to close Arctic coal mine, causing political headache

OSLO, Sept 4 (Reuters) - Norway's state-owned coal company said on Friday it plans to mothball its key mine in the Arctic Svalbard archipelago, posing difficult political questions for Norway as it seeks to control a strategic foothold in the north.

Plunging world coal prices have made the business unprofitable, and around 150 of its staff of 250 risk losing their jobs, mining company Store Norske said in a statement.

As recently as June, the loss-making firm had a cash infusion of 500 million Norwegian crowns ($60 million) to allow it to continue operations, but now needs more money to keep the mine in a state that could allow a future reopening, it said.

"The situation is very serious," Trade and Industry Minister Monica Maeland said in a statement on Friday.

"We will of course thoroughly evaluate the board's request and the issues this brings up."

The Lunckefjell mine was slated to produce around 1.9 million tonnes of coal per year from 2015 to 2019. A shutdown would leaves only the smaller Gruve 7, which is expected to produce 130,000-150,000 tonnes of coal per year.

Located around 700 km north of the European mainland, Svalbard is governed under a 1920 treaty giving Norway sovereignty but allowing all nations signing it to do business there and to exploit its natural resources.

About 1,700 of the around 2,700 people living in Svalbard are Norwegians, according to the country's statistics bureau. Russia has its own coal mining operation and the largest foreign enclave with about 500 inhabitants.

The number of Russians has dropped from 1,500 in the mid-1990s, but the ongoing tension with President Vladimir Putin still make it politically important for NATO-member Norway to show it can be the dominant nation in the remote islands.

And while the importance of tourism and scientific research has grown in recent years, the mining business with its employees and their families has been the cornerstone of Norway's presence in Svalbard.

"It's important to uphold commercial activity and our settlements in Svalbard," Maeland said.

The government is currently working on a white paper regarding future Svalbard policies. ($1 = 8.3032 Norwegian crowns) (Reporting by Terje Solsvik, editing by David Evans)

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