The Baal Bone underground mine will be closed and its site rehabilitated after negotiations for its sale did not progress.
A spokesperson for site owner Glencore confirmed that the closure would be going ahead after a proposed sale of the operation "was not able to be completed".
The details of the proposed sale have been kept confidential.
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The move to close the mine, which was used as a training facility after mining ended in 2012, was disclosed to Lithgow City Council on February 25.
Deputy mayor, Cr Wayne McAndrew, said he was very disappointed with the news.
"We had hoped the current owners Glencore would on-sell the mine and have the mine reopen and operate into the future," he said.
"We understood negotiations were going quite well."
CFMEU Mining and Energy district president Andrew Honeysett said the union was seeking meetings with both sides of government to discuss the issue, as he understood there were at least 20 million tonnes of recoverable coal at the site.
Mr Honeysett said the CFMEU had been able to have a brief discussion with the Opposition about the possibility of passing the lease on to a party who was willing to continue operations there.
Cr McAndrew said, while he was not totally across the figures, he had information that, depending on the extraction rate, it could still have 10-15 years of life.
"There's still coal in that site and I know that, for some reasons that none of us will ever know, the current negotiations for a new owner of the site fell through," Cr McAndrew said at council's meeting on February 25.
He moved, as a matter of urgency, that council seek contact with both sides of State politics "to impress upon [them] that the Baal Bone site is still very important and we would still like to see it used, not lost".
"Now the door may be closed in our face, but I think we at least need to explore the avenues and see if there is any option," he said.
The Glencore spokesperson said the company was currently developing detailed mine closure plans.
He stated they would " aim to achieve final land use that includes grazing and bushland-wildlife habitat, consistent with adjoining land".