Western Australia's Premier Colin Barnett Wednesday raised concerns about foreign ownership in his resource-rich state after it was revealed a Chinese firm intends to buy a crucial coal mine.

Australian conglomerate Wesfarmers has agreed to sell Premier Coal, which produces about 3.5 million metric tonnes of thermal coal each year, to Yancoal for Aus$296.8 million (US$293 million).

Subject to the approval of Australian and Chinese regulators, the deal will see Yancoal acquire the mining operations south of Perth which currently supply coal to a government-run power station and domestic industrial companies.

Barnett said the latest deal again raised concerns about the impact of the foreign ownership of resources on the security of the state's power supplies.

"There is a group of people within government working on the implications of this right now," Barnett told ABC radio.

"Indeed while these are private companies, the coal does belong to the state and there are provisions in the state agreement that ensure the coal is reserved for state domestic use."

Barnett, who earlier this month travelled to Beijing in a bid to encourage Chinese investment in an embattled port and rail project, said the state government was ultimately unlikely to oppose to sale.

But he added: "I'm not jumping up and down celebrating, this is a problem for the state, no doubt about it."

The deal comes after Indian power giant Lanco Infratech threatened to stop coal supply to a Western Australian power station that provides about 10 percent of the state's electricity after buying a nearby thermal coal mine.

Lanco suggested ending its contracts with a state-owned power station, saying it could not sell the coal so cheaply and remain viable, a move which prompted Barnett to threaten to block Lanco's export plans.

If the Premier Coal purchase goes ahead it will be the biggest Australian acquisition by Yanzhou Coal, of which Yancoal is a wholly-owned subsidiary, since its Aus$3.5 billion takeover of coal miner Felix Resources in 2009.

Yancoal last month spent Aus$222 million on miner Syntech Resources, adding to its 30 percent stake in the Ashton coal mine purchased for US$250 million from IMC Resources.

Australia approved Yanzhou's bid for Felix in October 2009 in what was then the biggest takeover by a Chinese company and considered a breakthrough for the booming Asian country's scramble for resources.

Wesfarmers managing director Richard Goyder said he was confident the sale, which must be approved by the Foreign Investment Review Board, would go ahead.

"They'll look to see whether there's any national interest issues but at the end of the day we'd be pretty confident that this would get through," he said.

Wesfarmers is one of Australias largest public companies and employers, with its diverse operations covering supermarkets, department stores, coal mining, energy, insurance, chemicals, and fertilisers.

-- Dow Jones Newswires contributed to this story --

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