The government agency tasked with protecting NSW's drinking water has opposed a coal mine extension that it claims threatens Sydney's second-largest dam.

The NSW Department of Planning is assessing a revised plan to extend the Dendrobium coal mine, which was declared state-significant infrastructure (SSI) in the wake of its rejection by the Independent Planning Commission (IPC).

WaterNSW objected to the original proposal due to its impact on water supplies. The agency maintained its opposition in its latest submission on the revised plan's environmental impact statement (EIS).

"The submitted proposal is considered unacceptable to WaterNSW in its current form due to impacts on water quantity, water quality and ecological integrity within the Metropolitan Special Area," it said.

In its latest submission, WaterNSW revealed the mine extension posed a risk to the stability of the Avon Dam, the main water source of the Illawarra region.

"WaterNSW, as owner and operator of the dam, is very concerned that the safety of the dam may be compromised by the proposed longwall mining.

"The differential movement on the dam walls could cause cracks to open in the dam walls."

The agency said subsidence from longwall mining at the dam was expected to be between 35 and 40 millimetres.

This is eight times higher than the subsidence observed by ongoing monitoring from 1970 to 2021.

WaterNSW claimed the impact of longwall mining on the dam had not been assessed by a suitably qualified dam engineer, and the subsidence impacts in the EIS  were "vastly underestimated".

Debate on water extent of water losses

WaterNSW said despite the 60 per cent reduction of the mine footprint, work on the proposed underground mine would still result in the removal of 70 gigalitres of water over the next 17 years.

Proponents South32 said in its latest mine plan it has reduced surface water losses by 78 per cent based on revised groundwater modelling.

But WaterNSW said it was concerned about the accuracy of the surface water loss predictions referred to in the EIS.

"Surface water losses are likely to be underestimated when compared to other available estimates and modelling."

It said that water losses were also predicted to continue well after the mine ceased its operation.

"Surface water losses will be long-term and potentially in perpetuity because the mine will not be completely sealed.

"The proposed continuous discharge from a partially sealed Dendrobium areas 2-5 were estimated at about 1.2 megalitres per day."

Claims of environmental damage 

South32 said its revised plan avoids key streams and swamp clusters, but WaterNSW said the longwalls would still run under or near 16 upland swamps and several significant watercourses.

The agency argued the proposed setbacks for key streams were aimed at remediating environmental damage rather than avoiding them entirely.

WaterNSW said remediation "will not restore the function and values of a stream system", and damage in some cases will be permanent.

"The proposed mine design is likely to cause significant or irreversible damage to environmental features, including numerous watercourses and swamps."

 IPC recommendations requirements

The project is the first mine to be granted SSI status, a declaration which was made after a motion passed through the NSW Legislative Council approving the project's elevated status.

The motion passed with a requirement that the revised proposal consider the recommendations of the IPC.

In its statement on its opposition to the project, WaterNSW claimed in multiple cases the miner had failed to do so.

"[The mine design] does not adequately address matters raised by the IPC, IAP and WaterNSW on the previous Area 5 and 6 mining projects, i.e., a mine design that minimises surface and subsurface impacts."

The IPC noted a lack of consideration of the environmental assessment of alternative mine designs.

WaterNSW disagreed with the proponent continuing to include 305-metre-wide longwalls, claiming narrower longwalls would reduce subsidence surface water losses.

South32 says no material water loss

A spokesperson for South32 said independent reviews of underground mining on the water catchment "have found there have been no observed material impacts to drinking water supplies due to underground mining in these catchments".

"Our expert assessment reports found there would continue to be no material water loss at a catchment scale, nor any material change in water quality at a catchment scale as a result of the Dendrobium Mine Extension Project."

Based on its modelling, the mining company said there were no predicted impacts on WaterNSW infrastructure.

"The information and data on ground fracturing and water flows outlined in our environmental impact statement has been peer-reviewed and is based on best practice modelling undertaken by independent professionals, informed by extensive monitoring data.

"Based on similar extensive peer-reviewed work, no material subsidence impacts are predicted to occur on existing WaterNSW water supply infrastructure due to the project."