The taxpayer may also foot a bill of more than pounds 20m in the fall-out, as administrators press for the Coal Authority, the residual body left after British Coal was privatised, to pick up the tab for land restoration work at CI's six mines around the country.
Arthur Andersen, the accountancy firm, was called in to run the company last Tuesday after last ditch re-financing talks failed.
CI's shares had been suspended since mid-December, after failure of a planning application to develop a new coal face in Staffordshire blew an pounds 8m hole in its cashflow forecasts. The crash was immediately blamed on management failures, in particular bad business planning by CI's chairman and chief executive, Malcolm Edwards, British Coal's former commercial director who resigned from the state-owned firm in 1992 after criticising pit closures and the privatisation programme.
More fundamentally, however, it raises key concerns about the banks' funding of British industry and the way British Coal went about privatisation in the first place.
"The tragic thing is that just at the very moment that CI had bulk revenue coming in after taking over the pits from scratch during the sell-off, it was cut off in its prime," one mining industry source said.
"In Germany, the firm would have turned to its banks, who would also be shareholders, and they would have taken a long-term view. Here, the relationship with bankers is remote, and funding typically through overdraft is no way to secure a future."
CI took over six of the 19 pits closed by British Coal in the run-up to privatisation at the end of 1994: Markham Main in Yorkshire, Annesley in Nottinghamshire, Cwmgwili in South Wales, Keresley near Coventry and Hem Heath and Silverdale in Staffordshire. Hem Heath was one of BC's largest mines and Silverdale is Europe's deepest, while the new Keresley pit contains some of Britain's biggest reserves.
Past investment to sink them all cost pounds 400m to pounds 500m. If they were now shut it would cost well over pounds 1bn to re-open the seams when North Sea gas runs out and Britain turns back to its 450-year reserves of coal to meet its energy needs.
By contrast, CI has raised around pounds 50m from investors to get its mines back up and running, plus a crucial pounds 30m facility from three banks last year as the money started to run out.
Mr Edwards, 61, started the firm in 1993, reversing his private Edwards Energy interests into a near-defunct Cornish tin miner, Geevor, to gain a stock market quotation.
All but one of the firm's pits were leased back from BC after closure and re-opened, finally coming on stream with new contracts with the likes of National Power, PowerGen and British Steel at the end of 1994. The firm seemed set for a secure future, but bitter disappointment set in after it failed, with a pounds 510m bid, backed by the breakaway Union of Democratic Mineworkers, to secure any of British Coal's five regions at the end of 1994.
Instead, three of the areas went to RJB Mining, now by far the country's biggest producer, run by controversial industry figure Richard Budge, a long-time Conservative party supporter whose private family firm had previously gone bust. All Mr Edwards received was the Annesley pit, to add to a 30 per cent interest, now worth around pounds 10m, in Mining Scotland, which won the northernmost region.
So far, Mr Budge has gone from strength to strength, confounding sceptics by nearly paying off pounds 500m of bank borrowings from the pounds 815m price he paid. For Mr Edwards, the dream soon started to go sour, with greater than anticipated costs of re-opening the pits BC had sealed off before Conservative backbenchers rebelled at the shut-downs in 1992.
"The management made many mistakes, sure. But many of the problems can be traced back to the way British Coal closed mines and to the development work then needed," one industry analyst said.
Originally, too, CI had planned to serve domestic markets and smaller industry, but demand from generators for an alternative supplier to RJB and for newly developed coking coal from British Steel necessitated greater development work, which ate up cash.
Failure to win planning permission for the new face at Hem Heath in December was the last straw.
CI admits its liaison with bankers, none of which had experience of mining, could have been better, but it feels bitterly let down by their short- term view and by UBS in particular.
After weeks of negotiations, last Monday lunchtime the company had expected to agree a top-up of pounds 4.3m to the pounds 25.7m it had already drawn down since last summer. National Power had already agreed to pounds 5m of credit, subject to a pounds 25m plus equity and bond issue in March.
The company had left a meeting the previous Thursday, comforted by strong backing from the Indosuez director, Stephen King, and indications of support from NatWest.
Behind the scenes, though, a furious row was boiling, with UBS refusing to go ahead after objections by credit people in Zurich. At the last moment, a banking source said, NatWest blinked and caved in: "UBS went into the meeting last Monday with instructions not to sign. Without UBS, the deal was dead."
Ironically, UBS had originally demanded the long-term indications of support National Power was prepared to give. But in a furious four-day row over Christmas, it quickly backtracked, demanding an immediate pounds 5m open line from the generator.
"NP was furious and told them to get stuffed," one source close to the talks said.
Shortly after the fracas, David Shepherson, UBS's lead banker on the deal, resigned. The Swiss bank declined to comment on its role in CI's collapse, but sources there say the timing of his departure was coincidental.
Talks were also hampered by squabbling between CI's advisers, merchant bank Guinness Mahon and brokers James Capel, which led to GM's Christopher Stainforth - an experienced hand, well versed in banging heads together - to step back in the penultimate blow to Mr Edwards before UBS pulled the rug.
The tragic irony now is that, against the pounds 1.4m or so each bank was being asked to put up, the total administration budget is said to be pounds 3m. On Friday night, joint administrator Murdoch McKillop was also locked in talks with the coal authority over restoration costs.
Under UK law, administrators are personally on the line for all liabilities, which also fosters a short-term view. The pits are still open, but analysts doubt a buyer for all can be found. Meanwhile, creditors stand to lose around pounds 25m, alongside the banks' pounds 25.7m.
"By stopping the show, the banks and everyone else are going to lose a lot more money. Pits are not like Sock Shop. Once you stop the development work, its much harder to start it up again, as privatisation showed," one industry source said.Reuse content