* Coalfield Resources says Daw Mill Colliery to close permanently
* At least 550 miners at Daw Mill will lose jobs
* Second major British coal mine to close in 3 months
* Company may divert coal from other mines to supply E.ON
* Discussions with government continuing
By Brenton Cordeiro and Ankur Banerjee
March 7 (Reuters) - Britain's largest coal mine will close permanently with the loss of at least 550 jobs due to a fire that has burned ferociously for two weeks, mine owner Coalfield Resources said.
Coalfield Resources shares were down 10 percent at 4.35 pence on the London Stock Exchange on Thursday.
The closure of the Daw Mill Colliery in Warwickshire after 47 years of mining is a blow to Britain's coal industry as it adjusts to greener government policy and vies with cheap imports from Colombia, Russia and the United States.
The mine has been closed since fire broke out 540 metres (1,800 ft) underground on Feb. 22. UK Coal, the operator of the mine part-owned by Coalfield Resources, said on Feb. 25 that its permanent closure was possible.
"The 650 (strong) workforce has already been put at risk of redundancy, although a small, core team will remain on site to safely secure the mine over the coming months," UK Coal said in a statement on Thursday.
UK Coal spokesman Andrew Mackintosh said the company expected to find jobs for 50 to 100 Daw Mill employees at other mines within the company.
The closure is the second recent blow to an 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.
"We have got concerns about whether (the closure) is going to have a knock-on effect and put the future of the other two collieries and the six surface mines into jeopardy," Chris Kitchen, general secretary of the National Union of Mineworkers, told Reuters by telephone.
Daw Mill produced 1.5 million tonnes of coal last year. Based on a price of $96 per tonne, the Wednesday close for API2 coal swaps, the mine would have generated revenue of $144 million (96 million pounds) in 2012.
Daw Mill accounts for about a quarter of UK Coal's output.
UK Coal avoided a debt default and the closure of its operations after a restructuring in December, which separated its mining operations and property assets.
The company had already been cutting costs at Daw Mill, where 96 employees lost their jobs in November.
"This ferocious fire has dealt a blow to everything we tried to achieve over the last 12 months - in just 10 days," UK Coal Chief Executive Kevin McCullough said in the statement.
The Daw Mill colliery has supplied 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 stockpile, McCullough told Reuters in an interview on March 1.
Mackintosh said UK Coal was looking to use coal from other mines, including its deep mines at Kellingley and Thoresby, to supply E.ON.
UK Coal said it was discussing with the government on how to manage the closure of the Daw Mill and seek a way forward for the other mines.
Energy Minister John Hayes said in a statement, "Along with my department, I understand that the company is also working closely with their insurers, suppliers and customers to agree arrangements for the way forward."