UPDATE 1-Aquila puts $7.7 bln Australian iron ore project on ice
* Funding woes hit West Pilbara Iron Ore project
* Funding key to winning port, rail approvals
* Project director goes to rival
* Shares slump to one-month low
MELBOURNE, Feb 4 (Reuters) - Australia's Aquila Resources Ltd has put its A$7.4 billion ($7.7 billion) West Pilbara iron ore project on ice at least through June due to funding difficulties, sending its shares down nearly 10 percent.
Aquila and its partners AMCI, a mining investment firm, and South Korean steel giant POSCO, effectively froze the project last September, when iron ore prices hit a three-year low. They had failed to agree on a budget for the year to June 2013 and sent the dispute into arbitration.
Arbitration was due to begin on Feb. 18, but Aquila said on Monday it had bowed to its partners and would continue the suspension on the project for the rest of this financial year.
"Aquila will continue to focus its efforts on how best to progress the project," executive chairman Tony Poli said in a statement.
The company also said last week that the project's director, Kevin Watters, had quit. He will take up the role of head of project development at a competitor Brockman Mining, working on the Marillana iron ore project also in the Pilbara, which has more options to export its ore.
Aquila and its partners have yet to agree on a replacement for Watters.
Shares in Aquila, 14 percent owned by China's biggest listed steelmaker, Baoshan Iron & Steel Co, sank to a one-month low of A$2.82 and last traded down 8.3 percent at A$2.86.
The West Pilbara Iron Ore project won state environmental approval last week, but still needs rail and port construction approvals, key to its plans for exporting 30 million tonnes a year of ore.
The Western Australia state government has said it will not approve construction of Anketell Port until it is certain the project's backers have the funds to build a mine, rail and port, which will depend on what has become an increasingly volatile iron ore market.
The API joint venture has wound down all engineering and design work for now, Watters told Reuters.
He said that with the heat having coming out of the construction market as several projects have been put on hold, the joint venture should be able to negotiate lower construction and engineering costs when it comes back to the market.
"It's certainly a keener market now in the engineering space and in the construction space," Watters said.