Australian mineral resources company WPG Resources has cancelled its plans to develop the A$1.5bn ($1.53bn) Giffen Well magnetite iron ore project in South Australia citing current uncertain market conditions.

The company said it has decided not to invest A$5m ($5.09m) to acquire a 25% joint venture stake in the project.

In March 2013, WPG completed a A$3m ($3.05m) prefeasibility study of the Giffen Well project, which indicated that the project is viable and could produce nearly 5 million tonnes of high-grade magnetite concentrate per year.

Despite these encouraging results, the company noted that the project has a high risk profile due to large development costs, along with decreasing Chinese growth.

WPG said that paying A$5m ($5.09m) for a 25% interest in the project amounts to a value of $0.03 per tonne of resource, while an analysis of listed mining companies with similar magnetite resources indicated that the stock market is attributing a value of $0.02 per tonne of resource.

According to WPG, if the company had exercised its option, it would have to pay about 50% more than current market value.

WPG Resources executive chairman Bob Duffin said that the mining sector is currently adjusting to a capital-constrained environment.

"There is a very limited pool of investors willing to fund the estimated $40m required to complete the project’s BFS, let alone those willing to fund the $1.5bn capital expenditure required to bring the project into production," he said.

"Our cash balance at 30 March 2013 was $11.2m, sufficient to fund the exercise of the option had
we so chosen, but it would have been necessary to raise additional funds to make meaningful progress on the BFS," Duffin said.

Image: The prefeasibility study into the Giffen Well indicated that the project could produce about 5 million tonnes of high-grade magnetite concentrate per year. Photo: Benjamint444.

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