While refilling the water cart's tank, the operator smelt something burning and found a small fire around the exhaust system.
The operator extinguished the fire with a hand-held extinguisher.
Diesel residue was found below the fuel filters unit on the water cart.
The NSW Resources Regulator said damaged gaskets and loose bolts were found on the exhaust unit.
"Mine operators should ensure stringent monitoring and quality control of maintenance and repair activities," it said.