* Coalfield Resources says Daw Mill Colliery to close permanently
* Majority of 650 miners at Daw Mill will lose jobs
* Underground fire still raging after two weeks
* Company says discussions with government continuing
* Daw Mill second major British coal mine to close in 3 months (Adds details on closure, background)
By Brenton Cordeiro and Ankur Banerjee
March 7 Britain's largest coal mine will close permanently and most of its 650 workers will lose their jobs due to an underground fire that continues to burn "ferociously" two weeks after it started, mine owner Coalfield Resources said.
The Daw Mill Colliery in Warwickshire has been closed since Feb. 22, when a blaze described by Coalfield as Britain's worst coal mine fire in 30 years began. The company had said that the closure was likely to become permanent.
"A small, core team will remain on site to safely secure the mine over the coming months," UK Coal, the mining division of Coalfield Resources, said on Thursday.
The closure is the second recent blow to a British coal mining industry battling cheap imports and greener government policy. Hargreaves Services said in December it would close its century-old Maltby pit and cut 540 jobs.
Most deep coal mines closed in Britain after a 1984 miners' strike, shrinking what had been an industry employing several hundred thousand workers to a headcount of fewer than 6,000 workers by 2011.
UK Coal, Britain's largest coal miner, employs almost half of these miners. Its six surface pits and three deep mines, including Daw Mill, account for about 40 percent of Britain's coal production.
UK Coal avoided a debt default and the closure of its operations after completing a major restructuring in December, which separated its coal mining operations and property assets.
The company had already been cutting costs at Daw Mill. Ninety-six employees lost their jobs in November.
UK Coal Chief Executive Kevin McCullough told Reuters in an interview on March 1 that the company might be able to redeploy some of the 650 Daw Mill miners to its other collieries.
In its statement on Thursday, Coalfield said discussions were continuing with the government "with a view to helping the company manage the closure of Daw Mill and seeking a way forward for the remaining mines".
The Daw Mill colliery, which had production capacity of around 1.5 million tonnes a year, supplies German-owned utility E.ON UK's Ratcliffe coal-fired power station.
Supplies to E.ON had not been interrupted as the company was able to work through its coal stockpile on the surface, McCullough said in the March 1 interview.
(Editing by Joyjeet Das and Robin Paxton)
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