An analyst says a coal company's plan to mine further into the Sydney drinking water catchment appears to be "totally stranded" by the findings of an independent body.

But Wollongong Coal has played down the Planning Assessment Commission's (PAC) most recent report, saying it has options and "the ball is in the company's court".

The commission's second review into Wollongong Coal's proposed expansion of its Russell Vale coal mine has found water and subsidence issues remain unresolved.

Tim Buckley is a director at the Sydney-based Institute of Energy Economics and Financial Analysis.

He said the commission's outcome was fair given the risks to the community were greater than the company had let on, but he held concerns about the assessment process.

"I think one of the telling things about the PAC report is they have not assessed the financial capacity of the proponent, because that's outside of their remit, but it's 100 per cent entirely within the remit of the NSW Government," Mr Buckley said.

"To me it's just a major shortcoming in the entire review process that we are wasting government and community time assessing a project for a proponent that is effectively, according to their own auditors and their own management reports, in financial distress and unable to continue as a going concern without a continued lifeline from their parent in India," he said.

"Because it's a one way bet: if the project were to go ahead, the proponent were to find funding from Jindal Steel and then something goes wrong, Jindal Steel can head back to India and leave the proponent in administration and the local community will wear the cost."

Wollongong Coal currently has no capacity to repay its debts unless it is thrown another financial lifeline by parent Jindal Steel & Power (Australia) Pty Ltd.

Its future hinges on the so-called Underground Expansion Project, to mine 5 million tonnes of coal in eight new longwalls over five years.

Wollongong Coal says it has 'any number of options'

Wollongong Coal now has an opportunity to respond to the independent PAC's findings.

A spokesman said there were "any number of options available to the company" and "the ball is in the company's court".

But Mr Buckley said the major issue was that the proponent had no capacity to remedy any damage it could cause to the catchment.

"It's ludicrous the company is still listed in the stock exchange, and for me the whole process is ludicrous," he said.

"The Government should just be assessing 'does the entity have the financial capacity to actually undertake the project, to fund the project, and to fund the environmental damage should it occur'," he said.

"They just put out a notice to their shareholders that they are issuing yet another two and a half billion new shares, because they can't afford to repay a $14 million convertible note loan that has been outstanding for more than a decade."

In those circumstances, Mr Buckley said a Russell Vale sell-off was unlikely.

"It's not a mine. There is no coal coming out of this mine," he said.

"The mine was closed six months ago, the entire workforce was sacked six months ago, so we're not talking about selling an existing operating asset, we are talking about selling a permit.

"So would someone buy a permit and spend $85 million building a new mine in this market where the coal price is down 60 per cent, where it's falling every month for the last five years and where the demand outlook is deteriorating every day?"

'Magnitude of impacts to the environment': PAC

The PAC's review of the proposed expansion of the Russell Vale coal mine was the second and found a number of issues remained unresolved by Wollongong Coal.

"Concerns were raised by WaterNSW, Office of Environment and Heritage, Department of Primary Industries, Environment Protection Authority, and the Independent Expert Scientific Committee on Coal Seam Gas and Large Coal Mining Development," the PAC's determination read.

"Their concerns include risk of water loss, risk to upland swamps, noise impacts on nearby residents and along Bellambi Lane, potential hydrological impacts and loss of ecosystem functions," it read.

Intermediate short term benefits of the project were acknowledged by the PAC, including the creation of 300 jobs, $23 million in royalties for NSW and $85 million in capital investment.

But it determined the degree of water loss due to subsidence and cracking in the catchment was uncertain.