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* Lenders to mining projects turn cautious as iron ore, coal prices slide
* Projects risk missing investment decisions
* Contractors feel the pain as miners pull projects
By Sonali Paul
MELBOURNE, Sept 13 (Reuters) - A $246 billion pipeline of planned mining investments in Australia is on increasingly shaky ground, with nearly half already frozen or likely to be delayed, as miners and lenders wrestle with high costs and sliding revenue.
A sharp fall in iron ore and coal prices, driven by a drop-off in demand from China, has caught many by surprise and forced miners -- from the world's largest, BHP Billiton , down to the smallest -- to review their investment plans.
"Anyone who was expecting to bank a project at the levels we were at about eight weeks ago had unrealistic expectations," said Michael Blakiston, a partner at law firm Gilbert+Tobin, which advises miners and is a director of iron ore company Sundance Resources.
The commodities rout has thrust Australia into a debate over whether the mining boom is over and can no longer be relied on to create jobs, power growth and raise tax revenue in a $1.4 trillion economy that has gone 21 years without a recession.
Dumping projects will mean millions of tonnes of future coal and iron ore supplies are stripped from the world market, laying the ground for a swifter price revival if Asian demand rebounds.
The $246 billion of planned projects is based on government data on projects under study or awaiting approval and mining expenditure estimated by bankers and lenders. It also includes $40 billion of projects already halted by BHP.
According to project finance lenders, lawyers and analysts, some of the major projects at risk include the $10 billion Roy Hill iron ore mine, Xstrata's $6 billion Wandoan mine and GVK Power & Infrastructure's $10 billion Alpha Coal mine. They are in new mining areas, requiring huge investment on railways and ports, which makes them tougher to fund.
The companies had planned to make investment commitments by late 2012 or early 2013, but this looks in doubt as lenders demand more equity and impose tighter terms, such as requirements to hedge commodities prices.
Even top miners concede the days of ever rising prices, which in the past eight years earned them record profits and prompted $70 billion of Australian investment, look to be over.
Iron ore prices have slumped about a third since early July to three-year lows below $90 a tonne and coal prices have tumbled about a fifth this year to near two-year lows.
BHP last month shelved its Olympic Dam copper mine expansion, its Outer Harbour iron ore expansion and its Peak Downs coking coal expansion, together worth over $40 billion.
And debt-laden Fortescue Metals Group, which had planned to triple iron ore output to 155 million tonnes a year by mid-2013, slammed on the brakes last week, delaying nearly half that expansion to save $1.6 billion.
"We are still bullish on lending but overall prepared to lend less due to the softer prices," said a banker in the mining hub of Perth, declining to be named due to client confidentiality.
The government conceded last week it was worried about the outlook for resources projects that are on the drawing board.
"In the immediate future, I've only got a couple in my mind that could go to final investment decision over the next 12 to 18 months," Resources Minister Martin Ferguson told reporters.
Projects on the government's list include 33 iron ore programmes with a combined capacity of 465 million tonnes, equivalent to about a year of Australia's output. These include the 40 million tonnes expansion deferred by Fortescue.
Also at risk are 73 coal projects with a combined capacity of 522 million tonnes, 50 percent more than produced in 2011, including those owned by India firms such as GVK Power & Infrastructure. G V K Coal told Reuters it was confident that its Alpha project was viable.
These were on the Australian Bureau of Resources and Energy Economics' list of less advanced projects released in May, which is due to be revised in November.
Many will need to be reviewed in light of weaker commodity prices and capital costs inflated by labour shortages, competition for equipment, rising energy costs, new taxes and higher royalties, bankers and analysts said.
The biggest project seen at risk is the Roy Hill mine in Western Australia's Pilbara region, which is targeting 55 million tonnes a year of iron ore output starting in 2014. The project includes the construction of a new rail line.
A pet project of Australia's richest person, Gina Rinehart, Roy Hill's financing is yet to be secured.
The mining heiress' Hancock Prospecting is reluctant to give lenders a guarantee on completion and faces pressure to hedge iron ore and foreign exchange exposure, Thomson Reuters publication Project Finance International reported last week.
Key to keeping Roy Hill alive, is whether partners, including POSCO, Japan's Marubeni and China Steel Corp, decide to give the construction contract to South Korea's POSCO. That could help attract funding from export credit agency Korea Eximbank.
A Roy Hill spokesman did not respond to phone calls or emails when sought for comment.
Bankers also say Xstrata's Wandoan thermal coal project in Queensland, which could become Australia's biggest coal mine producing 22 million tonnes a year, could be delayed, holding up port and rail investments that other miners planned to use.
Xstrata says the mine is one of its top priorities and is awaiting a state mining licence, which it expects in early 2013. But adding to concerns, Xstrata this week said it was slashing jobs at its Australian coal operations. [ I D:nL3E8KA17W]
"Feasibility studies into our Wandoan project continue, to enable an investment decision once relevant approvals have been completed and market conditions permit," Xstrata said.
Aquila Resources' $6 billion West Pilbara Iron Ore project, another major new project, appears in limbo after the firm failed to agree with its partner, investment firm ACMI, on a new budget last week, designed to conserve cash.
Aquila officials were not available to comment, but the firm said in a statement one partner may end up having to buy out the other to settle the dispute. That means whoever ends up owning it is likely to need time to find new funding.
Caught in the cross-fire are mining contractors who have been reaping the benefits of $270 billion worth of resources projects already under way, dominated by liquefied natural gas developments in Queensland and Western Australia.
Up to now they have been able to pass on soaring costs for labour, materials and equipment to resource firms, desperate to get the best contractors signed on ahead of competing projects.
Now the tables are turning, with projects gradually getting put on the back burner, freeing up labour and equipment.
Contractors have been quick to try to douse concern, but investors have punished the shares of companies like Boart Longyear, NRW Holdings and Calibre Group , all major service providers to the miners.
NRW, whose shares have slumped 26 percent in the past month, said it will lose A$100 million, or 8 percent, of revenue it had expected in the year to June 2013 due to Fortescue's slowdown.
The Minerals Council of Australia says mining projects now cost well above the global average, with iron ore projects, excluding those at established mines in the Pilbara, costing up to 75 percent more to build than mines offshore.
As projects get put on hold, a key driver for other parts of the economy, from housing to engineering, will take a hit.
"We are particularly concerned about a mining-related shock to the economy, because it is unclear to us that any other sector would be able to pick up the slack in the short term," Credit Suisse strategist Atul Lele said in note to clients. (Additional reporting by Sharon Klyne in SYDNEY; Editing by Ed Davies)