BHP Billiton will spend $US845 million ($A832.47 million) to open a new mining area at its Illawarra Coal business to sustain production, ensuring continued employment for 500 workers and a further 300 construction jobs.

BHP Billiton will develop a new area at its Appin Mine, to the south west of Sydney, to replace production from its nearby West Cliff Mine, the company said on Friday.

The new mining area is expected to be operational in 2016.

BHP Billiton said the new mining area would have a production capacity of 3.5 million tonnes per year of coal used for steel-making and would sustain its wholly owned Illawarra Coal’s production capacity at nine million tonnes per year.

“The investment sustains Illawarra Coal’s production rates and recognises the value of its high-quality metallurgical coal resources,” BHP Billiton metallurgical coal president Hubie van Dalsen said in a statement.

“It is also good news for local jobs and the economy in the region.”

NSW Resources Minister Chris Hartcher welcomed the decision, saying BHP Billiton would generate more than 300 construction jobs as well as ensuring continued employment for the 500 workers currently at the West Cliff mine.

“This is great news for the Illawarra and the regional economy. It means jobs, continuing investment and community benefits,” he said.

“This is also a great result for the state’s economy at large. We welcome the jobs and investment that the mining industry offers NSW as part of the economic revival the O’Farrell government was elected to deliver.”