Roughly $350 million is needed over the next five years to upgrade existing mines and develop the Mandalong deposit.

"With access to new coal and marketing resources Powercoal could pursue a bigger share of high value export coal markets, without financial risk to the state," the government said in a statement. Powercoal made an operating loss after tax of $11.95 million in the year ended June 30, 2000.

No timeframe had been set for the sale of the business and the government would continue to consult closely with unions over the process.