June 23, 2011 / 6:49 AM / 7 years ago

UPDATE 1-Sinosteel suspends $2 bln iron ore project in Australia

* One of a handful of mine projects in new Australian iron belt

* Delays to more projects may be on horizon

* Mining boom stretches Australia’s workforce, infrastructure

* BHP, Rio protecting access to rail lines and ports (Adds details, quotes)

By James Regan

SYDNEY, June 23 (Reuters) - Sinosteel suspended work on its $2 billion Weld Range iron ore mining project in Australia’s midwest region — one of the largest investments by China in Australian mining — due to setbacks in developing port and rail infrastructure.

The project took years to set up and Sinosteel was one of only a handful of miners seen pioneering a second iron ore belt in Australia beyond the vast Pilbara region 1,500 km to the north.

But economists and mining executives have been warning lately that a national mining boom now in its seventh year has taxed Australia’s ability to hire enough skilled workers and import enough construction equipment to keep up the pace.

A record A$430 billion ($451 billion) in resources investment is either underway or on the drawing board in Australia as the country’s mining boom shows no sign of slowing — a level viewed by some as stretch for an economy with an annual output of A$1.3 trillion.

“We are certainly not closing the door on Weld Range, however, we must make the right business decisions in order to protect our assets and ensure a realistic future for our organisation,” Julian Mizera, the Chief Operating Officer of the Sinosteel subsidiary Sinosteel Midwest Corp said in an email.

“Unfortunately we have now had to draw a line in the sand,” Mizera added, citing expectations of further delays to the development of the Oakajee port and rail project beyond a revised completion date of 2015 that would cost the company’s Australian unit $100 million per year.

Sinosteel, a state-owned Chinese metals producer and trader, is one of the foundation customers for the planned Oakajee deepwater port, a venture operated by Australia’s Murchison Metals and Japan’s Mitsubishi Corp .

Sinosteel’s withdrawal leaves Gindalbie Metals Karara iron project and the Jack Hills mine owned by Murchison and Mitsubishi, as the two remaining customers for Oakajee.

Gindalbie said in a statement it was not relying on the Oakajee project to produce up to 16 million tonnes per year of iron ore, though expansions beyond that will require its construction

Murchison, which requested a halt in the trading of its shares to weigh Sinosteel’s announcement, said in March the cost of Oakajee had ballooned to $5.2 billion from $4.4 billion, while some analysts put the final construction bill closer to $6 billion.

High infrastructure costs and a lack of skilled workers available is causing delays to new projects across Australia, according to Steve Badenhorst, director of the Australia coal arm of Brazilian mining giant Vale .

“When a welder in Australia now earns A$220 an hour, where he used make $120, that’s the result of demand for labor,” Badenhorst said.

The midwest region of far west Australia is viewed as fresh hunting ground for foreign prospectors, many from Asia, hungry to tap Australia’s abundant cache of minerals but virtually barred from the ore-richer Pilbara by sector heavyweights Rio Tinto and BHP Billiton .

Each company guards its own spaghetti-bowl of rail lines and entry points for ports from newcomers, seeking to peg parts of the Pilbara.

Frustrated by delays to the Oakajee project due to cost overruns, Western Australia’s state leader, Colin Barnett in March insisted construction had to begin by the first quarter next year to allow the midwest iron ore miners to begin exports by 2015.

Ratings agency Fitch said it expects funding to become more difficult in Australia as projects continue to face cost increases and timetable overruns. (Editing by Balazs Koranyi)

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