Funds a colliery in California (7)
I believe the answer is:
capital
'funds' is the definition.
(thesaurus)
'a colliery in california' is the wordplay.
'colliery' becomes 'pit' ('pit' can be a synonym of 'colliery').
'in' is an insertion indicator.
'california' becomes 'cal'.
'a'+'pit'='apit'
'apit' placed within 'cal' is 'CAPITAL'.
(Other definitions for capital that I've seen before include "Fantastic!" , "Kabul or Harare?" , "Topping" , "Money saved or invested - seat of government" , "What starts this clue" .)