A controversial Chinese coal mine project in the New South Wales Liverpool Plains looks unlikely to go ahead.

Key points: Open cut Watermark coal mine near Gunnedah, NSW, unlikely to go ahead

Open cut Watermark coal mine near Gunnedah, NSW, unlikely to go ahead Chinese company Shenhua says its mining exploration licence expires in a few days, no application made for mining lease

Chinese company Shenhua says its mining exploration licence expires in a few days, no application made for mining lease Federal Government sources say Shenhua is stalling due to financial instability

Federal Government sources say Shenhua is stalling due to financial instability Agricultural Minister Barnaby Joyce says the mining project is "ridiculous"

Shenhua's $1.2 billion open cut Watermark coal mine near Gunnedah has conditional approval from the Federal Government, but its mining exploration licence expires on Monday.

The company has applied to renew its exploration licence, but it still has not applied for a mining lease, despite already having development consent from the State Government.

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A mining lease is essential for the next stage of the project and it is typical for companies to apply for one as soon as they have development consent.

If granted, a lease would cost $200 million, on top of the $300 million already spent on the exploration licence.

The expiry of the exploration licence would not stop Shenhua from proceeding with the project.

But an independent body reviewing whether Shenhua's water management plan is environmentally sound is yet to report back.

And the company's development consent is under challenge in the NSW Land and Environment Court by the Upper Mooki Landcare Group, which has argued the project places the local koala population at risk.

The judgement for the case is yet to be handed down.

If the court overturns Shenhua's development approval, Shenhua and the State Government would have to start the lengthy assessment process all over again.

The ABC has also learned that Shenhua has not made any submissions to the NSW Department of Planning since March 26 last year.

A spokesman for NSW Minister for Industry, Resources and Energy's Anthony Roberts said in a statement: "Shenhua has submitted a renewal application for its Exploration Licence to the NSW Division of Resources and Energy (DRE).

"Shenhua project is currently awaiting final approval of its water modelling from the Commonwealth's Independent Expert Scientific Committee as committed to by the Commonwealth Government in July 2015," they said.

"While Shenhua has received Planning Approval from the NSW Government, it has not submitted a Mining Licence application to the ... DRE."

Federal Government sources have told the ABC such factors indicate it is "unlikely" the mine will go ahead.

They think Shenhua is "stalling" the project because it is not financially viable, and they point to China's slowing economy and falling commodity prices.

Mine proposal "ridiculous" according to Barnaby Joyce

China's coal imports dropped by 30 per cent last financial year and Shenhua's own coal sales slumped by 18 per cent. The decline has continued this year.

Barnaby Joyce argued the proposed mine was too close to agricultural land. ( Supplied: Shengua )

Thermal coal —which is used in energy production — has fallen about 20 per cent in the past year to about $US50 per tonne. That is compared to the more than $US130 per tonne it fetched in 2011.

Meanwhile, metallurgical coal, which is used to make steel, has crashed from $300 per tonne to $81 per tonne over the last four years.

And in the past two years there has been less of a political taste for coal in China.

China's central government has made no secret of its goal to diversify away from coal-fired electricity to build a stronger clean energy sector.

In the past year and a half, high-emitting factories have been forced to close in the push to reduce smog and pollution.

Federal Environment Minister, Greg Hunt approved the Watermark coal mine last year, on the condition that it would not extract more than 10 million tonnes of coal per year and that it must have a water management plan.

Agriculture Minister Barnaby Joyce, whose New England electorate includes the Liverpool Plains, opposed the mine and labelled it "ridiculous".

He has argued the mine site is too close to prime agricultural land.

The NSW Government last week denied suggestions Shenhua had asked to pull out of the project and that it wanted its money back.

Shenhua would not respond to questions from the ABC about the future of the mine.

The company had anticipated its mine operations would commence last year, and previously suggested that Watermark would employ up to 600 workers during the construction phase and more than 400 staff in ongoing operations.

Questions have also been raised about the financial viability of BHP's Caroona mine, which sits adjacent to the Watermark site.

NSW Government sources have told the ABC that BHP is currently talking to the State Government about redrawing the boundaries of the mine, to move it away from prime agricultural land.