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The owner of Australia's largest hardwood processor has asked the Victorian Government to fund a $40 million refit of the mill.
Australian Sustainable Hardwoods employs 250 people at Heyfield in Gippsland, but is threatening to close the mill due to a cut in native timber supply.
The company said it could access younger regrowth forest before moving entirely to plantation timber by 2043.
But Hermal Group chief executive Clinton Tilley said the transition required government help.
He said the mill needed to retool to be able to handle smaller logs from lower value conservation forests.
"We put forward a plan that involves moving out of 1939 regrowth areas into lower conservation forest areas over the coming few years, and then moving out of that most probably by about year 25 into a state-based plantation system," Mr Tilley said.
Agriculture Minister Jaala Pulford, union representatives and Australian Sustainable Hardwoods owners met last night in Melbourne to work out a plan to try and keep the mill open.
The mill told its workers earlier this month they could be out of a job by September.
But Mr Tilley said the mill needed government support to stay open.
"There's a lot of work to be done in a short space of time," he said.
"There was an agreement around the table to help find a way forward, not only for the short term but the long term as well."
'Clear desire to remain open'
The mill has no timber supply locked in beyond June, with timber bought from the state-owned logging company VicForests.
Mr Tilley said he was hopeful the mill would remain operational.
"There's a few sticking points but everyone is outcome-focused at the moment, and there's a clear want and desire on all parties to ensure we get to a point where we can remain open," he said.
"The difficulty is that there isn't the volume of forest available in those other [plantation] species in Victoria at this time.
"With those trees not on the ground, it's difficult for us to make toast when we don't have bread."
Mr Tilley said it was possible the mill could move to full plantation timber supply in 25 years.
"We have to find some middle ground. The resource we need in the long term isn't there yet," he said.
"For us to remove the noise around our business would be the best move forward."
Government considering refit funding
Ms Pulford said the Government would "interrogate" the company's proposal and "see what's possible".
She said the Government supported moves that would allow a higher proportion of timber milled to be sourced from plantations.
"What we have all agreed to do is to work together over the next month to explore every possible option for the future of the mill in Heyfield," she said.