The decision puts at threat 700 jobs in the Illawarra region, $714 million in royalties, taxes and rates and an economic impact of about $2.8 billion.
South32 sought planning approval to extend the life of Dendrobium longwall mine until the end of 2048 and extract an additional 78 million tonnes of run-of-mine coal from two additional areas near Avon and Cordeaux Dams.
The IPC said significant concerns were raised about the proposed mine design, subsidence, ground and surface water impacts, biodiversity and upland swamps, Aboriginal cultural heritage and greenhouse gas emissions.
A whole-of-government assessment by the Department of Planning, Industry & Environment concluded the Dendrobium Extension Project was "approvable", finding its benefits "significantly outweigh its residual costs, and that it is in the public interest".
However, the IPC decided to refuse the state significant development application, finding the risks of adverse impacts on the environment were high, and those impacts were not appropriately manageable or likely to be irreversible.
"[A]fter careful examination of all the evidence and weighing all relevant considerations, the commission has found that the longwall mine design put forward by South32 does not achieve a balance between maximising the recovery of a coal resource of state significance and managing, minimising or mitigating the impacts on the water resources and biodiversity and other environmental values of the Metropolitan Special Area," the IPC's Statement of Reasons for Decision says.
"[T]he level of risk posed by the project has not been properly quantified and based on the potential for long-term and irreversible impacts - particularly on the integrity of a vital drinking water source for the Macarthur and Illawarra regions, the Wollondilly Shire and Metropolitan Sydney - it is not in the public interest."
The IPC noted the applicant had not appropriately addressed concerns in relation to the proposed mine design.
"The applicant was aware of concerns raised by WaterNSW and others regarding its mine design and the associated impacts," it said.
"The applicant has made minor amendments; however, the impacts remain significant.
"The commission notes the applicant has offered mitigation measures for remediation of selected key stream features, financial offsets for water losses and water quality impacts and an upland swamp offset site, however, a number of these measures have not been considered acceptable by the responsible statutory agencies."
A South32 spokesman said the company acknowledged the assessment report from the IPC and was reviewing its findings.
"We will continue to engage with key stakeholders including the New South Wales government and the community in relation to the Dendrobium Mine Extension Project," he said.
"As outlined during the IPC public hearings, the Dendrobium Mine Extension Project would provide major economic and social benefits for Wollongong, the Illawarra region and for New South Wales.
"It would support the continued employment of 400 existing personnel and a further 100 personnel once the project is operational. An additional 200 jobs would be created during the construction and development phase. The project would ensure the continued supply of high-quality metallurgical coal for steelmaking.
"The project is forecast to contribute $714 million in royalties, taxes and rates, and deliver a net benefit of $2.8 billion to the New South Wales economy.
"During public exhibition of the project's Environmental Impact Statement, the NSW Department of Planning, Industry and Environment received more than 750 submissions from members of the public, organisations and government agencies. Eighty-one percent of public submissions expressed support for the project."
On the topic of water use by the Dendrobium Mine Extension Project, the spokesman said the company understood the sensitivities of working within the Greater Sydney water catchment and the Metropolitan Special Area.
"We have committed to offset any surface water losses from the Dendrobium Mine Extension Project to ensure the project would be a positive contributor to the metropolitan water supply," he said.
"The extension project would not mine beneath dams, named watercourses or key stream features and has been designed to have a neutral or beneficial effect on water quality within water catchment areas."
Greenpeace Australia Pacific spokesman Martin Zavan said the project would have risked contaminating a major source of drinking water for tens of thousands of Sydney residents, as well as contributed to the ongoing climate crisis.
"Coal is the number one driver of climate change, which turbocharged the 2019-20 bushfires that destroyed so much of the land that Australian wildlife call home in NSW," he said.
"This project would have further exacerbated the climate crisis and put more pressure on our precious wildlife.
"Thankfully the IPC has made the right decision to prioritise Sydneysiders' drinking water over the declining profits of coal mining companies."
NSW Minerals Council CEO Stephen Galilee said the Illawarra simply could not afford to "lose this critically important project".
"The refusal of this project will cost 700 direct local jobs at the Dendrobium mine and put the jobs of thousands more people at risk, including local contractors and suppliers, as well as thousands of jobs at the BlueScope Steelworks dependent on coal from the mine," he said.
"The NSW government must intervene to ensure this project is approved and can proceed, as recommended by its own Department of Planning.
"To do anything less will demonstrate a willingness to throw away billions in investment and the jobs of thousands of people at a time of significant economic need."
