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The project was prompted by a former North Otago man, Richard Pringle, now living in Australia, who in August donated $10,000 towards it.
He has been interested for some time in seeing the water wheel preserved.
Since then a charitable trust, comprising North Otago Historic Places Trust chairwoman Carol Berry, Waitaki Mayor Alex Familton and Southern Heritage Destination project supervisor Marcus Brown, has been established to investigate the project, obtaining funding from the Lotteries Board.
That will be used to cover the cost of preparing a conservation plan and an engineering works plan.
Mrs Berry said Mr Pringle planned to start the restoration work in October this year and was pleased with the support he had received from the trustees, who established and registered the trust so that donations could be tax deductible.
Support had been received from other sources, including the Waitaki District Council which owned the water wheel site and surrounding land as a reserve.
"I've added $10,000 to the pot.
The interest and positive support which the locals have given are all going to mean that this project gets off the ground and adds a really interesting link to the history and story of North Otago," Mr Pringle said.
Yesterday, Mrs Berry met archaeologist Andrew Winter and conservation surveyor Robin Miller to start the conservation and engineering works plans.
Both are needed before fund-raising and work can start.
The plans will examine and research the history of the site, collate existing information, identify its cultural and heritage significance and give guidance on work needed.
Options ranged from restoring and conserving the existing water wheel to having it working again, although Mrs Berry said the latter was probably too costly and raised safety issues.
Information panels would explain the history and how the water wheel worked.
Mrs Berry appealed for anyone with photographs or information about the water wheel to contact her.