Fertile farmland in the Liverpool Plains area in northern NSW will be protected from future coal mining activity, the state government says.
Fertile farmland in northern NSW has been protected from mining by a foreign-owned coal company but critics say the state government's intervention doesn't go far enough with ridge lands still at risk.
The Berejiklian government on Wednesday announced it would refund $262 million to Shenhua Watermark to buy back more than half of a coal exploration licence in the Liverpool Plains region.
NSW Energy Minister Don Harwin says mining activity will now be restricted to the ridge lands to protect the region's fertile black soils.
"Exploration can continue on area that's away from the black fertile soil but there's still a number of conditions that have to be met and work that has to be done before I will consider whether a mining licence will be issued," he told reporters in Sydney.
Former local farmer Tim Duddy says the government's decision is a step in the right direction.
"It's not the silver bullet but it's the start of one arriving," he told ABC Radio on Wednesday.
"This is about agriculture versus mining and it is an illustration that in some spaces they are not compatible".
However, not everyone agrees, with Liverpool Plains farmer Andrew Pursehouse labelling it a betrayal by the government.
"If it (the government) was serious about protecting farmland, it would have cancelled the coal licence outright and stopped this coal mine," he said in a statement.
The NSW Greens have made similar calls, arguing Wednesday's decision doesn't go far enough in protecting the region's water table.
"The idea that you can dig a 300-metre deep pit next to a flood plain and it will not impact on the water table is ridiculous," Greens MP Jeremy Buckingham said in a statement.
Mr Harwin says the buyback will ensure no jobs are lost in the area and will also allow agricultural work to continue as usual.
An exploration licence for BHP's mining project, also in the Liverpool Plains, was bought back by the state government last year.