Australia to pay China's Shenhua $200 million to buy back mining licence

SYDNEY (Reuters) - Australia's New South Wales state said on Wednesday it would buy back half of a coal exploration licence from China Shenhua Energy Co Ltd, bowing to pressure from farmers and environmentalists opposed to mining on prime agricultural land.

The government of Australia's most populous state said it had agreed to pay A$262 million ($200 million) to buy back 51.4 percent of Shenhua's exploration licence on the Liverpool Plains 400 kms (250 miles) northwest of Sydney.

"Under this government there will be no more exploration and no mining on the fertile black-soil plains of the Liverpool Plains," NSW Minister for Resources Don Harwin told reporters in Sydney.

"The ridges are areas where exploration can continue but the fertile black soil of the Liverpool Plains will be protected from mining as a result of us buying back the exploration licence today."

Anti-mining activists vowed to continue campaigning for a complete ban on mining in the region, including a coal mine proposed by Korea Electric Power Corp (Kepco).

"This buyback does little to address the impact of the large coal pit that will still be built (by Shenhua) to mine coal," said Phil Laird, the national coordinator for environmental group Lock the Gate Alliance.

"We will continue to campaign to have all mining there stopped."

The exploration licence for Shenhua's A$1 billion Watermark mine, granted in 2008, sparked a public backlash and split Australia's conservative ruling coalition into pro-mining and pro-farming camps.

Development has been delayed by assessments and modifications in response to concerns raised by farmers, and mining has not yet begun.

Shenhua said in an emailed statement it was disappointed by the government's move and would have mined the area responsibly, but added the buyback was an "acceptable financial outcome".

Kepco is facing renewed resistance from farmers after the state's planning department endorsed its project, saying the impact on water supplies was outweighed by the economic benefits a mine would bring.

Last year, New South Wales agreed to buy back BHP Billiton's licence for the Caroona coal mine on the Liverpool Plains for A$220 million, ending a decade-long fight by farmers to shut down the project.

Another open-cut coal project in NSW's Hunter Valley, south of the Liverpool Plains, was sold by Anglo American in May amid opposition from racehorse breeders in the area. The buyer, Malabar Coal, promised to proceed with an underground mine.

($1 = 1.3070 Australian dollars)

(Reporting by Tom Westbrook and James Regan; Editing by Stephen Coates)