Defence personnel faced “unacceptable risk” as shrapnel exploded near them during a botched training exercise that caused the State Mine fire last year, according to an inquiry report.

“That no injury or fatality occurred was a matter of good fortune,” the Defence Force Commission of Inquiry says.

Army officers and students blew up two piles of eight high-explosive anti-tank rounds. The fire started when “kick-out” from the rounds detonated.

The Rural Fire Service refused to tackle the blaze because it was too dangerous on the training site near Lithgow, according to the report.

Federal Government insurer Comcover told insuranceNEWS.com.au it has received 39 property loss claims, with $66,527 paid out to date.

NSW Premier Mike Baird says he will pursue Commonwealth compensation for the fire victims.

The fire burned across 56,000 hectares for a month, destroying five houses and seven buildings.

It started on a high-fire-danger day in the Marrangaroo Training Area, where hazard reduction had not taken place for about 20 years, according to the report.

Military live-firing activities are prohibited on such days, so the exercise that “directly led to the resulting bushfire should not have taken place”.

Other Defence Force failures included poor record-keeping on anti-tank explosives and the presence of an unauthorised howitzer shell.

Firing on ground known to contain unexploded ordnance presented “an unacceptable risk”, the report says.

A 2010 report by local bushfire authorities warned a fire at the training site was “almost certain” and would be of “major consequence”, but no prevention protocol was agreed with the Defence Force.

The inquiry report recommends firefighting capabilities at the training area be upgraded so personnel “are not placed in situations of unacceptable risk”.