Coal is where this remarkable phenomenon happened with the share prices of most listed coal stocks rising strongly over the past month, while a large privately owned coal miner fell into the hands of an administrator.

Griffin Coal, a business run for the past 30 years by Ric Stowe (and before that by his dad, Bob), is the unfortunate failure, tipping over with debts said to be somewhere between $A700 million and $2 billion, and a tax liability somewhere in the order of $200 million.

Macarthur Coal, Gloucester Coal, Stanmore Coal, Centennial Coal, Cockatoo Coal and Whitehaven Coal are among the coal stocks which have seen their share prices shoot sharply higher.

Why, is the question which fascinates Dryblower. Why is one coal company in trouble and the others not, with a secondary question being what lessons can everyone in the mining game learn from the Griffin experience.

Firstly, Griffin appears to be a classic case of what happens when management takes its eye off the ball – a way of saying that Griffin forgot it was a coal mining company.

Over the past three decades, Stowe and his staff have endeavoured to expand, upgrade and diversify Griffin away from its roots with the most recent example being the building of power stations adjacent to the company’s mines.

In other words, Griffin was on the way to becoming an electricity producer more than a coal miner.

There are valid reasons for such a move, principally because Griffin’s coal (along with the entire Collie Basin in southwest Western Australia) is unsuitable for export, or even transporting over long distances. Its best use is out of the mine, into a power station.

By going down the electricity route Stowe tried to capture the added value in his coal, and that’s when financial matters got really sticky because he didn’t allow for a whole raft of problems such as construction delays, budget blowouts, and complaints from traditional coal customers that the quality of coal being sold to them was slipping.

All this added up to Griffin shedding coal customers as it rushed to complete its Bluewaters power stations and the planned income stream from selling electricity – and that’s before we get to the question of Stowe choosing to live in Europe rather than be close to his principal asset, and for the tax dispute to balloon out to a monstrous $200 million.

These are some of the lessons learned, so far, from the Griffin collapse:

Lesson one: Never take your eye off the cash flow part of your business.

Lesson two: Don’t fight the tax man unless you are absolutely certain you can win because when he gets angry he can legally boost your bill.

Lesson three: When expanding a business make sure your debt servicing capacity aligns with the timing of your cash flow, and always set something aside as a contingency.

Lesson four: Always keep your customers happy, deliver what they want, at the quality they want.

Lesson five: If you plan to diversify your business, or chase the holy grail of value adding to your basic product, then take great care because few businesses do it successfully.

Stowe probably knew all of those lessons. As a chartered accountant, who inherited his father’s business (Stowe & Stowe), and his major stake in Griffin Coal, he would have handled the accounts of clients who made similar mistakes in the fields of customer service, tax and excess debt.

For anyone running a business what happened to Griffin is a sobering reminder that things can always go wrong, and often they all go wrong at the same time.

However, for Dryblower, the big lesson is the question of diversification, and what happens when you take a perfectly good coal mining business, load it with debt, and try to turn it into an electricity business.

It might sound simple, but by going into the power-production game Stowe introduced a fresh basket of risks, not the least being the need to employ different skills, operate different equipment and deal with different customers.

The next question, and the super tricky one, is what’s different between Griffin trying to morph into a power producer, and iron ore miners going down the value-adding role of briquetted iron or some other partly-processed product, or a bauxite miner thinking it can become an aluminium producer, or a gas and salt producer becoming a petrochemical maker.

The answer is not a lot, and that’s perhaps why BHP Billiton failed with briquetted iron, Rio Tinto failed with direct smelting, countless petrochemical proposals on Australia’s west coast have failed, and no one has ever built an aluminium smelter alongside west coast bauxite mines and alumina refineries.

The common thread is that switching the focus of a business is never easy, and chasing the lure of increased profits from value-adding close to a mine is always far more complex than anyone expects.

*Dryblower is a weekly column on ILN’s sister publication MiningNews.net.