Jobs growth versus environmental concerns have been reignited with a coal company's proposed expansion under Sydney's water supply.

Key points: South32 wants to extend the life of a coal mine near Wollongong

South32 wants to extend the life of a coal mine near Wollongong The company says if approval isn't granted, the effects on the local steel industry will be severe

The company says if approval isn't granted, the effects on the local steel industry will be severe The bid has raised concerns about the possible impact on the Sydney water catchment

Mining company South32 says if its proposed expansion on the New South Wales south coast does not go ahead it could jeopardise the future of Australia's largest steelworks at Port Kembla.

South32 wants to expand the life of the Dendrobium coal mine — one of its two remaining sites near Wollongong — in the hope of producing 78 million tonnes of metallurgical coal over the next 30 years.

If approved, it would add 100 jobs to the existing workforce of 400 plus 200 jobs during construction — but the proposal is set to reignite the challenge of generating employment and economic growth against protecting the water supply in the Sydney catchment area.

South32 manager of operations Jason Economidis said if the Dendrobium expansion was rejected, Illawarra mining operations would collapse and force the closure of BlueScope Steel.

"If we cease to exist and BlueScope Steel ceases to exist, then the Port Kembla Coal Terminal would also cease to exist," Mr Economidis said.

"Which means the other coal operators in the region would also struggle because they would have to ship their coal up to Newcastle."

Economic driver

In its Environmental Impact Statement (EIS), the company outlined that one of the key drivers for the expansion was the need to support the Australian steel-making industry.

The EIS stated that the mine was an essential supplier of metallurgical coal to Australian steelmakers, providing 60 per cent of the coal for the Port Kembla steelworks.

Jason Economidis warns if the Dendrobium expansion is rejected, it will have dire consequences for the steel industry. ( Supplied: South32 )

The company warned that if supply was disrupted, BlueScope would need to invest an estimated $150 million to upgrade port facilities, and would incur up to $100 million annually in additional costs to source coal from elsewhere.

Mr Economidis said the entire South Coast economy depended on the proposed plan.

"So this one mine of Dendrobium sounds like a small thing, but if you look at it in the ecosystem, it could have a hugely detrimental effect on the whole ecosystem should it not be able to continue," he said.

Dave Bell, BlueScope Steel's general manager of manufacturing, said the expansion was very important.

"It is vitally important to our success and our future here that the coal mines continue to supply us high quality coal," Mr Bell said.

"It allows us to remain internationally competitive."

Environmental warning

South32's mine is located under the Sydney water catchment between the Avon and Cordeaux Dams, and environmental groups warned the proposed expansion poses too great a risk to the area's water supply.

Lock the Gate's Nic Clyde said the company had consistently caused more damage to the drinking water catchment than what was projected.

"Is it appropriate to be longwall mining at all underneath reservoirs whose main job is to provide the city with fresh drinking water?" Mr Clyde said.

A recent draft report from the Independent Expert Panel for Mining in the Catchment found it was "plausible that an average of around 3 million litres a day of surface water and seepage from reservoirs is currently being diverted into the mine workings".

$100k water compensation plan

South32 says there is no plan to mine under the Avon and Cordeaux dams. ( Supplied: South32 EIS )

In March, in a submission to an independent scientific panel, WaterNSW found major concerns around water loss and surface-to-seam fracturing around the mine.

"Findings have confirmed that subsidence from Dendrobium Mine is causing impacts greater than were predicted and approved," it said.

WaterNSW noted that the situation was improving and acknowledged the next phase of the expansion plans were being designed and installed early and with departmental input.

South32's EIS stated the expansion would involve no direct mining under the Avon and Cordeaux dams and river systems, with any longwall mining set back 1,000 metres from the dam walls.

The study predicted connective fracturing and associated groundwater depressurisation would cause a less than 1 per cent water loss from the Avon and Cordeaux catchment, which it said was the equivalent of 4 per cent of leaks from the Sydney water pipe network.

In response to the expected water losses it suggested a compensation plan, which it believed would result in payment of approximately $100,000 annually to WaterNSW.

Water concerns

Ian Wright, a senior lecturer in natural science at the University of Western Sydney, said the EIS made it clear there would be a number of impacts on water courses.

"I haven't seen proof they can glue up any fractured streams — it is likely there will be permanent damage," Dr Wright said.

"When we are talking about mining in such an important and sensitive catchment, this really makes me pause for breath.

"We really have to think about this seriously."

The EIS is available for comment and will be on public display for 56 days.

The Independent Expert Panel for Mining in the Catchment will release its final report on specific mining activities at the Metropolitan and Dendrobium coal mines in August.