Ashton open cut coal mine near Camberwell in the Hunter Valley, New South Wales. Australia's mining investment boom is tapering off

Two of the world’s biggest horse breeders have won a bitter three-year battle with Anglo American in a landmark planning case that reflects a rising tide of opposition to mine expansions in one of Australia’s biggest coal regions.

Darley and Coolmore, respectively owned by Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum and Irish billionaire John Magnier, opposed the Drayton South Mine, saying it threatened their billion-dollar stud farms nearby.

The proposed opencast mine would have produced 7m tonnes of coal a year and, according to miner Anglo American, contributed an annual A$35m (US$31m) in royalties to the government. The company said it was critical to extending the life of its existing mining operation at Drayton, which employs 500 people.

On Tuesday the New South Wales Planning Assessment Commission ruled that the proposed mine extension was “not in the public interest” and did not provide a sufficient buffer to protect the horse studs from the impact of mining.

“The economic benefits of the project do not outweigh the risk of losing Coolmore and Darley and the potential demise of the equine industry in the area with flow-on impacts on the viticultural and tourism industries,” the commission said.

The decision is a blow to Anglo American and the wider coal industry, which is struggling with a slump in prices, China’s recent imposition of tariffs on imports and increasing levels of environmental activism.

The price of thermal coal has almost halved since peaking in January 2011, prompting Australian miners to slash 10,000 jobs and close a number of mines.

Anglo American said the decision was a blow to the local community and threatened the continuation of mining in New South Wales.

“This has gutted our 500-strong workforce and their families. The PAC’s decision will have serious detrimental implications for the Hunter Valley and for New South Wales,” said Seamus French, chief executive of Anglo American’s coal business.

He said the company was considering its options.

The bitter planning dispute pitted horse breeders, local vintners and farmers against the powerful coal mining industry. It became a focal point for a rising tide of opposition to mine expansions in the wider Hunter Valley, an area of scenic beauty rich in coal. Several mines and coal seam gas projects in the region have attracted persistent environmental protests.

“This is a very important decision for the Australian horse breeding industry and one of enormous relief to Darley,” said Henry Plumtre, managing director of Darley Australia.

“The Hunter Valley supplies three-quarters of the thoroughbred horses that race across Australia. It is vital to the breeding, racing and wagering industry to keep it intact and enable it to continue to attract investment.”

On Tuesday the PAC also rejected a separate mine expansion in the Hunter Valley, which was proposed by a private company, Coalpac. Ian Follington, Coalpac chief executive, told the Financial Times the company would now almost certainly close with the loss of almost 100 jobs.

The New South Wales Minerals Council, a coal industry lobby group, said the state’s planning system was broken.

“These outcomes make a mockery of the claim that NSW is open for business and send a very damaging message about the future of NSW as a place for investment,” said the council.

The debate over the extension of Drayton South has dragged on for more than three years. An independent planning assessment commission initially rejected the mine expansion last December.

But in July a new proposal by Anglo American was supported by the New South Wales state government. The decision by the planning assessment commission, which is independent of government, is the final stage in the planning process. It is possible that Anglo American could seek a judicial review of the decision.

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