Conservationists say state water protections are "worthless" after they lost a challenge against a mine extension they claimed would unlawfully pollute parts of Sydney's drinking catchment with salt.
Non-profit group 4nature had argued the PAC's assessment of the Springvale coal mine, near Lithgow, had incorrectly found the development would have a mutual or beneficial impact on water quality.
But Justice Rachel Pepper on Tuesday found the PAC had not applied the wrong reasoning in coming to an independent and appropriate decision, notwithstanding modelling that showed the development could increase salinity at discharge points.
"Today the state environmental planning policy on drinking water has become worthless," said keith Muir from Colong Foundation for Wilderness outside the court on Tuesday.
"It's not worth the paper it's written on."
The proposal allows the extension of underground mines and prolongs its life by 13 years.
The court has heard discharge water will flow into the Coxs River and into lakes in the Sydney drinking water catchment.
During a hearing earlier this year, 4nature's lawyers said the development would lead to a "not insignificant and immaterial" salinity increase 21km away from the mine at Lake Burragorang.
"In my opinion ... the PAC was aware of these matters but considered that the carrying out of the project would, in any event in light of the totality of the material before it, have a neutral or beneficial effect on water quality," Justice Pepper said.
The mine's owner, Centennial Coal, says the mine employs more than 300 people and is the only mine to supply coal to the Mt Piper Power Station.
It said "rigorous" conditions imposed at the time of approval were later cleared by the EPA and NSW Department of Planning.
"We have always maintained that all issues were appropriately addressed during the most extensive of assessment processes," said the company's external affairs general manager, Katie Brassil.
"Today's decision secures the livelihood of our local community while we also continue to supply the state's electricity needs."
The case was supported by numerous conservation groups and was launched on behalf of 4nature by the Environmental Defender's Office.
The Environmental Defender's Office said the challenge was a test case for laws introduced in 2009 that were designed to protect the city's water catchment.
