UPDATE 3-Miner Coeur gets OK to dump waste into Alaska lake

* Army Corps of Engineers acted within law, court rules

* Environmentalists urge Obama to repeal Bush rule

* Company expects to bring mine into production in 2010

* Coeur shares up 5.4 percent (Adds company comments, stock rise in paragraphs 6-9)

By James Vicini

WASHINGTON, June 22 (Reuters) - The U.S. Supreme Court ruled on Monday for Coeur d'Alene Mines Corp by upholding a government permit that will allow the company's Alaska gold mine to deposit rock waste into a lake on federal land.

In a closely watched environmental case, the justices overturned a U.S. appeals court ruling that had invalidated the permit for Coeur's underground Kensington Gold Mine northwest of Juneau.

In 2005, the U.S. Army Corps of Engineers granted the company's Alaska unit a permit to put 4.5 million tons of rock waste, or mine tailings, into the lake over a decade.

The Corps of Engineers, not the federal Environmental Protection Agency, has the authority to permit the slurry discharge, and the Corps acted in accordance with the law in issuing the discharge permit to Coeur, Justice Anthony Kennedy wrote in the Supreme Court's majority opinion.

The deposits would have raised the height of 23-acre Lower Slate Lake by 50 feet, so the company proposed building a 90-foot-high dam at the site in the scenic Tongass National Forest.

Shares of Coeur D'Alene rose 5.4 percent to $11.38 on the New York Stock Exchange shortly before the close.

"We now look forward to bringing Kensington into production, which we are now targeting for the second half of 2010," Chairman, President and Chief Executive Officer Dennis Wheeler said in a statement applauding the ruling.

The mine's potential for 125,000 ounces of annual gold production represents a 135-percent increase from Coeur's current gold production levels, he said. Coeur, which operates mines in Nevada, Bolivia and Mexico, is predominantly a silver producer.

Wheeler said Kensington, where construction was halted during the appeals process, is expected to provide an estimated 370 direct and indirect jobs in Juneau and Southeast Alaska. Coeur has said the mine has proven and probable reserves of 1.5 million ounces of gold.

The appeals court sided with environmentalists and ruled the permit violated the federal clean water law. It said the toxicity of the discharge might have lasting effects on the lake, killing all the fish and nearly all aquatic life.

Idaho-based Coeur argued that depositing tailings in the lake was the most practical and environmentally sound option.

Both Coeur and the state of Alaska appealed to the Supreme Court. The federal government supported their appeals.

Environmentalists argued that modern mines had never been allowed to dump tailings into lakes, and the appeals court ruling confirmed a rule of law in place for more than 30 years.

Writing for the six-member court majority, Kennedy said deference must be given to the reasonable decision by the Corps of Engineers.

Justices John Paul Stevens, Ruth Bader Ginsburg and David Souter dissented.

Officials at Earthjustice, one of three environmental groups involved in the case, expressed disappointment over the ruling.

"The Clean Water Act was intended to halt the practice of using lakes, rivers, and streams as waste dumps," said Tom Waldo, who argued the case. "Today's decision does not achieve these purposes."

The officials said the Bush administration rule giving the Corps of Engineers authority in such matters had reversed thirty years of successful regulation under the Clean Water Act. They urged President Barack Obama to act immediately to repeal the rule. (Reporting by James Vicini; Additional reporting by Steve James in New York; Editing by John Wallace and Lisa Von Ahn)