A final investment decision for the life extension project had been scheduled for H2 FY21, after the expected receipt of approvals.

"Accordingly, guidance in relation to the project is withdrawn ahead of providing further updates," the company said.

Major project capital expenditure for the Dendrobium extension increased by $16 million in H1 FY21 to $23 million as it incurred pre-commitment spend on studies and critical path items ahead of its planned final investment decision scheduled in H2 FY21.

NSW deputy premier John Barilaro said he would be seeking urgent legal advice as to whether the state government could potentially overturn the IPC decision, which was based on advice from Water NSW that the development would endanger Sydney and Wollongong's water supply.

"The decision by the IPC to reject South32's Dendrobium coal expansion will be recorded as one of the most destructive decisions since the IPC's formation," Barilaro said.

"I'm getting sick to death of a small review panel overriding hundreds of years of shared knowledge by experts in NSW Planning."

The IPC threw out NSW planning department advice to approve the project with conditions.

Sustaining capital expenditure for South32's Illawarra Metallurgical Coal division decreased by US$30 million in H1 FY21 to $75 million  as the company's spend on underground development and other sustaining expenditure returned to typical levels following a substantial prior investment to support the return to a three longwall configuration.

FY21 sustaining capital expenditure guidance has been reduced $4 million to $146 million.