If the department had been adopting world's best practice and keeping up with what was happening in other mining environments, there would have been different procedures.
"In effect it deluded itself that it was following the right process when in fact it wasn't."
After the failure to control methane, the explosion on November 19, 2010 killed 16 miners and 13 contractors.
Mr Key issued a formal apology: "On behalf of the Government I apologise to the families, friends and loved ones of the deceased men for the role this lack of regulatory effectiveness played in the tragedy."
Minister of Labour Kate Wilkinson resigned her portfolio yesterday, but not from the Cabinet. Attorney-General Chris Finlayson picks it up in an acting capacity. Ms Wilkinson keeps her conservation portfolio and remains a Cabinet minister.
The Royal Commission slams both the company and the health and safety regulator of the time, the Department of Labour, saying the disaster was preventable.
The Department of Labour did not have the focus, capacity or strategies to ensure that it was meeting its legal responsibilities.
"There were numerous warnings of a potential catastrophe at Pike River," the report said.
Sources included reports made by underground deputies and workers. In the 48 days before the explosion there were 21 reports of methane levels reaching explosive volumes, and 27 reports of lesser, but potentially dangerous volumes.
"The reports of excess methane continued up to the very morning of the tragedy. The warnings were not heeded," the commission said.
The commission said it could not be definitive "but potential ignition sources included arcing in the mine electrical system, a diesel engine over-heating, contraband taken into the mine, electric motors in the non-restricted part of the mine and frictional sparking caused by work activities". The risks increased with the introduction of hydro-mining at which time the board approved a bonus. It was payable to workers if a production target was met by a defined date, after which the bonus reduced progressively each week.
Of the Labour Department, the commission said "the sad reality is that the Department of Labour's performance in relation to safety and health in the mining industry has been so poor, at both the strategic and operations levels, that the department lost industry and worker confidence."
How the company failed
*Hired too few experienced miners to set standards.
*An insurance risk survey in July 2010 identifying serious concerns about hydro-mining hazards was not seen by board.
*Warnings about methane levels and poor ventilation ignored.
*Decided ventilation shaft could be deemed second exit.
*No safety assessment done when hydro-mining introduced.
*Bonuses for targets allowed production to override safety concerns.
How the government failed
*Pike, with no underground experience, was given a permit to mine with no scrutiny of its health and safety plans.
*Department of Labour mining inspectorate was run down to two inspectors with no training or systems.
*Physical inspections made but insufficient information.
*DoL ordered improvement in ventilation system at Pike River but did nothing to enforce it.
*Inspector did not shut down mine until second egress formed when higher risks of hydro-mining began in September 2010.
*Relied on trust that Pike was complying with negotiated health and safety contract.Kate Wilkinson
