If Centennial accepts the Austral takeover offer and the sale of Anvil Hill is completed, total proceeds to Centennial will be around $1.06 billion.

Following a period of prolonged production problems at some of its mines and disappointing financial results, Centennial says the proceeds from the sale of Anvil Hill will be used to reduce debt.

Anvil Hill received government approval in June this year after being widely opposed by environmental groups who claim it ignores the dangers of climate change and water shortages.

Located in the New South Wales Upper Hunter Valley, the project will include four opencut mining pits producing up to 10.5 million tonnes per annum of thermal coal over 20 years.

Centennial has long touted the mine as its "lower risk" turnaround project, which would have produced at least one-third of the company's longer-term output.

Commenting on the Anvil Hill deal yesterday, Centennial managing director Bob Cameron said the sale price reflects the greater potential of Anvil Hill under Xstrata's ownership.

"In particular, Xstrata Coal is able to add value through greater blending opportunities and operational synergies," he said.

"It is also better positioned to absorb the risks involved in the development of such a large project, particularly in the current environment."

Xstrata Coal chief executive Peter Coates said the acquisition of Anvil Hill will add significantly to the company's NSW thermal portfolio.

Meanwhile, Xstrata's offer for Austral Coal values Centennial's 86% shareholding in Tahmoor at $479m and, if successful, will trigger a $156m repayment of Austral debt owed to Centennial.

Under the proposal, Xstrata subsidiary Helios Australia will offer to acquire all of the shares in Austral.

"The acquisition of Austral's Tahmoor underground mine will increase Xstrata Coal's exposure to hard coking coal at a time of significant growth within the market," Coates said.

"It will also facilitate the company's entry into the southern coalfields and allow immediate access to an unconstrained port [Port Kembla]."

Cameron said the price offered for Austral would represent a significant return for shareholders and recognises the improvements in Tahmoor's performance under Centennial's ownership.

He said the company is now positioned to benefit from its well performing portfolio, reduced gearing and export-focused expansions.

Centennial shares closed 3 cents higher yesterday at $A3.94 after trading at a peak of $4.29 after the announcement.