The decision did not come as a surprise since energy regulators last month said the Grassy Mountain project, proposed by a unit of Australian billionaire Gina Rinehart's Hancock Prospecting, would not be in the public interest.

Environment Minister Jonathan Wilkinson, responsible for taking the final decision, said the project would harm surface water quality and threaten endangered animal and tree species.

"The Government of Canada has determined those effects are not justified in the circumstances and therefore, the project cannot proceed," he said in a statement.

Hancock's Riversdale Resources unit said that at its peak, the proposed C$800-million project would produce 4.5-million tonnes of steelmaking coal a year, generate C$1.7-billion in taxes and royalties over the 23-year mine life, and employ 400 people.

Last month Benga Mining, which is owned by Riversdale Resources, said it would launch an appeal against the earlier rejection by the energy regulator.