UPDATE 1-Low zinc price sinks Burkina Faso mine project

(Adds details, share price)

SYDNEY, July 17 (Reuters) - Plans to dig West Africa's first zinc mine in impoverished Burkina Faso have been scrapped due to funding problems linked to depressed zinc prices, the project's Australian owner, Aim Resources AIM.AX, said on Thursday.

Aim held an agreement to ship 45,000 tonnes of concentrate a year to Brazilian metals group Votorantim once its Perkoa mine started up, and it had also sought to supply other firms such as Xstrata Plc (XTA.L) in Spain and Boliden (BOL.ST) in Sweden.

"Current zinc prices and forecasts have made funding difficult for zinc projects and a downturn in both debt and equity markets has also significantly reduced financing opportunities," Aim said in a statement.

Construction work started more than a year ago on the mine, which was tipped to become the single-largest contributor of gross domestic product to Burkina Faso, one of the world's poorest countries. About 90 percent of the population is engaged in subsistence agriculture. Cotton is the main cash crop.

Banking group UBS has been appointed as financial adviser to Aim, in part to preserve the company's cash position which was put at around $15 million once the cost of implementing a care and maintenance plan was subtracted, the company said.

As of June 1, Aim held $57 million in cash and was estimating it needed a further $57 million to complete development of the mine, the company has previously said.

Aim shares lost 35 percent of their value on Thursday, trading at A$0.031 at 0321 GMT.

London Metal Exchange-traded zinc MZN3 dropped almost 3 percent overnight to $1,795 a tonne and has lost over 20 percent of its value since January as supply outpaces demand. Most analysts predict the market to remain solidly in surplus.

Canada's Teck Cominco Ltd (TCKb.TO) said on Tuesday it was closing its Lennard Shelf zinc mine in Australia next month as lower prices had made it uneconomical to run.

Also in Australia, Zinifex Ltd ZFX.AX, has agreed to a friendly takeover by Oxiana Ltd OXR.AX, whose main asset is a copper mine in Laos, to help reduce its exposure to zinc. The new firm is called Oz Minerals.

Aims said it had explored funding options, including partnerships, to keep the project afloat without success.

Its board of directors would continue to evaluate ways to fund the mine, but ruled out an outright sale given present market conditions, it said.

Concentrate, or ground ore, from the mine containing 53 percent zinc metal, was to be railed from Burkina Faso to the Ivory Coast port of Abidjan for shipping to overseas buyers. ($1=A$1.03) (Reporting by James Regan, Editing by Mark Bendeich)