UK Coal said after a comprehensive three-month review of revised mining plans, measures to allow the remaining 5 million tonnes of reserves to be extracted viably had not been identified.
Mining will cease after 1.6Mt of coal has been extracted from current workings and the subsequent face now being developed.
"Despite the best endeavours of the workforce at Welbeck, we have failed to secure ways of reducing the high-cost gaps in production which are forecast in the current mining plans," UK Coal chief Gerry Spindler said.
The colliery lost £20m last year after geological problems, which resulted in the loss of planned production capacity, reducing its annual output by half to 800,000t.
Welbeck had been awarded £7.8m in two tranches by the Dti under the Coal Investment Aid scheme. UK Coal had so far qualified for £3.5m of the award.
Redundancy costs, depending on the level of transfers to other collieries, is expected to reach up to £12m.
