The Island Creek Coal Co. announced today that it will invest $25 million to build a 1,600-family town for its employes -- the largest private development ever built in Southwest Virginia.

"We expect such an influx of peiple in the next few years, that we will have in excess of 4,000 employes," said Stonie Barker Jr., Island Creek's president, in announcing the investment. The company currently has 2,300 employes but 40 percent of them drive more than 40 miles to get to the county for work.

Barker said expansion of the company's sperations in Buchanan County would require hiring at least 1,500 more workers in the next several years.

Housing is so desperately short in Grundy that prospective residents often wait at least six months until they can find a home. Some wirkers drive as far as 80 miles over winding and often dangerous roads to mine the rich coal that abounds in the County.

"We are the work area, but we're not the bedroom," said a Grundy businessman.

The development, called Buchanshire, will be located on a mountainside two miles outside Grundy, the county seat. Plans call for 1,000 chalet-style single-family homes, 350 trailer pads and at least 200 apartments. The homes will sell for $40,000 and up, according to company officials.

Island Creek's $25 million -- half of which it expects to write off as a loss -- will cover the cost of installing water and access roads on 1,223 acres of Keen Mountain, and of doubling the capacity of the local sewage treatment plant to 800,000 gallons per day. day.

Thompson Litton Inc., a Wise County engineering firm, which designed Buchanshire over 2 1/2 years, will supervise its completion by 1985, Barker said. The apartments and trailer pads are to be finished within three year, and the single-family homes, which will be contracted to local developers, will be built at a rate of 200 a year starting in 1981.

Other coal companies have cooperated with government-funded housing programs in West Virginia and Kentucky, but this is the first time a coal company his singlehandedly created its own development, Barker, the Island Creek president said.

"No, it is not going to be a company town," said Mike Musulin II, a company spokesman.

The announcement by Island Creek, a subsidiary of Occidental Petroleum Corp., indicates the compay's concern that because of the housing shortage it is having increasing problems attracting workers to Buchanan County where it has six mines and is opening a seventh.

"Each mine in this division had a lifespan of 40 to 50 years," Barker said when asked about the $12 million loss that Island Creek says it expects on the project. "Indirectly it's going to pay dividends. It's an investment in people. They're going to be more contented, they're going to be more rested, and they're going to be more productive."

The project also indicates the lengths to which the company will go to build morale among miners. Last year, Island Creek operated at 70 percent of capacity, largely because of labor problems.

The Island Creek project underlines the difficulties of life in this rough, mountainous area, where a county survey shows that 80 percent of the land is so steep that it is difficult to build anything on. Most construction is limited to river valleys and the isolated hollows.

In Grundy itself, Main Street snakes along the Levisa River for several miles, hugging the steep valley walls so tightly that workers have begun blasting out part of a cliff so the town can grow a few yards sideways. About the only cross streets are those that carry traffic to the other side of the river, which is occupied by railroad tracks.

Because of the coal boom, Grundy is thriving. Dump trucks and payloaders along Main Street dwarf the pedestrians, often miners with sootsmeared faces. But there are few houses for sale.

The county, for instance, is building a new hospital, but can't find houses for the additional doctors.

Grundy's population is only 2,600. "We'd have more people here, but there are no houses to put them in," says Arlon E. Rice, the county program director. "You wait six months uhtil you find one open."

Even then, the average price is $55,000, he says, and of the housing that exists, 40 percent is substandard, according to William L. Flagle Jr. of Thompson & Litton Inc.

"Here, mobile homes are parked by bulldozers on the mountainside," says Rice, "There just isn't that much flat land." Where there is, it floods. Last year Grundy was swept severely by flooding in which three county residents died.

Island Creek officials are uncertain whether Buchanshire will solve the Problem. "It will put a dent in it," says Musulin. Others say the homes will appeal to miners and that because financing has been arranged through local banks there will be a ready market.

If nothing else Buchanshire is big in this largely rural country, where 1,600 homes have enormous impact. "There isn't a subdivision in southwestern Virginia that has 1,000 homes," said Flagle.