The federal government will be taken to court after the Environment Minister declared Shenhua's economic benefit outweighed the Gomeroi cultural heritage of the site.
In 2015, the Gomeroi Traditional Custodians applied to have the area near Breeza protected, due to its high cultural significance, including large grinding grooves, scarred trees, ceremony sites and numerous artefacts.
However, in July this year Environment Minister Sussan Ley knocked back the application.
In rejecting the application, Ms Ley acknowledged the "immeasurable cultural values" of the site and that the mine would result in the "likely destruction of parts of their Indigenous cultural heritage".
"I considered that the expected social and economic benefits of the Shenhua Watermark Coal Mine outweighed the impacts on the applicants [Gomeroi people]," she wrote in the rejection document.
Gomeroi woman Dolly Talbott said the deep hurt felt by the Elders and the community at this decision left no choice other than to fight it.
"When we heard of the Minister's decision, there was a high level of confusion and disbelief," she said.
"Does our culture, our spiritual and sacred places of Aboriginal heritage, mean nothing in this country?
"We are the only ones who have no monetary interest in this. We just want to protect our heritage, our sacred places."
Ms Talbott said the group tried working within the system created to protect their cultural heritage and met all the criteria required under the Aboriginal and Torres Strait Islander Heritage Protection Act.
"We believe the Act was put in place to protect our heritage, but in this case it hasn't at all," she said.
"The process was difficult and took four long years to be assessed - they acknowledge that our heritage will be desecrated, obliterated - it would be gone forever.
"They acknowledge the areas we sought protection of are of immeasurable value, sacred to us as a people and important for our cultural traditions - and yet the Minister has turned us down."
The group will be represented by the NSW Environmental Defenders Office (EDO).
EDO CEO David Morris said the minister's decision raised important questions about how the Act worked in practice.
"This will be an important test case, interrogating the limits of the constitutional basis for the Act and the matters which the minister was permitted to consider in deciding to refuse protection for the areas," Mr Morris said.
A spokesperson for Ms Ley said it was not appropriate to comment at this stage given the matter is subject to legal proceedings.