Located 50km southeast of Gunnedah, the Caroona area has an estimated 500 million tonnes of untapped coal resources.

The decision to grant the exploration lease followed a competitive expressions-of-interest process initiated by the NSW Government in August last year.

BHPB said it would invest $2 billion over the life of the mine, with an initial estimated $1 billion investment to establish the mining complex and related infrastructure upgrades.

Over the five years, BHPB will conduct a four-year staged exploration with up to 300 boreholes to be drilled by 2010 and extensive hydrological and other environmental studies to be completed over the licence period.

Feasibility studies into necessary infrastructure upgrades are required to be completed in the next five years, including track improvements, a potential tunnel through the Liverpool Ranges and potential upgrades to coal loading infrastructure at the Port of Newcastle.

The mine approvals process will commence in 2010, with construction slated for 2012 and first coal expected in 2014.

BHPB’s submission to the NSW Government included an agreement with the Australian Rail Track Corporation (ARTC) to work cooperatively to upgrade rail infrastructure for the eventual transport of coal to the Port of Newcastle.

BHPB also agreed with ARTC to undertake major studies that could lead to the development of a transport tunnel through the Liverpool Ranges.

NSW Premier Morris Iemma said Friday’s grant to BHPB was “the first step in the development of a major new coal producing region”

He said the new exploration project would have major benefits for the region including 1000 new jobs.

While rich in coal, the Gunnedah Basin, and particularly the Caroona area, is plagued by insufficient infrastructure and rail capacity to transport coal to the Port of Newcastle.

A NSW Department of Primary Industries representative said factors restricting the development of the Gunnedah Basin were: the distance from the port, the cost of transport (Liverpool Range imposes constraints on coal haulage), limited resources suitable for opencut mining (when compared to the Hunter Valley) and the extensive alluvial plains.

The Gunnedah coal field is divided into two unequal portions by the Boggabri Ridge, with the eastern part made up of low ash, high energy thermal coal in the Maules Creek formation. In the western portion both thermal and soft coking coal are present in the Hoskissons and Melvilles seams.

Regional exploration has identified substantial underground coal resources in the Narrabri and Caroona areas at depths of less than 300m. Much of the resource is suitable for underground mining, with only about 10% suitable for opencut operations, the Department of Primary Industries estimated.