IIRC, almost all of the Ceruleum supplies were gone. There was only one group left that still had the skill and knowledge to mine and process it, and they are a group of bottom-caste who are so bitter towards whatever treatment they got from the Garleans that they refuse to work with them.

We're never told exactly what caused the collapse of the IInd Legion, but failed logistics are what destroys most armies, no matter how powerful.